Duvvuri Subbarao, former Governor of Reserve Bank of India, has said that the central bank “could lose control over money supply and inflation management if cryptocurrency is allowed in the country.”
“Crypto is backed by algorithms and there is fear that the central bank might lose control over money supply and inflation management. There are also concerns that crypto will disrupt the monetary policy,” he said during his speech at a webinar organised by the National Stock Exchange (NSE) and the New York University (NSU) Stern School of Business on Wednesday.
Rao added that India’s case for issuing a central bank digital currency (CBDC) may not be strong as there are capital controls.
“Crypto can jump capital controls; fiat money is linked to the reserve currency,” he mentioned.
According to him, cash is on its way out in India and digital payments are becoming popular.
Rao said owing to the pandemic, however, currency circulation has increased as people held on to cash due to lockdowns. “The central bank’s role as last-resort lender should not be hampered.”
Rao, who served as the governor of RBI from 2008 to 2013, said CBDC also needs robust data protection laws.