Let The Crypto Cat Out Of The Bag

Context: Government of India’s recent proposed legislation, while wish to ban private cryptocurrencies, gives the go-ahead to central bank digital currency (CBDC) issued by the Reserve Bank of India(RBI).

Problems associated with private cryptocurrencies: Lacks money-ness

• Supply constraints: cryptocurrencies cannot commensurate the progress and value addition that are not limited by time.
  • Bitcoin (BTC), the bellwether crypto’s mining, progressively reduces the total number of tokens that can be mined every year.
• Super-high volatility in prices: due to global monetary policy.
  • Cryptos look more like gold and penny stocks, alternate investments that are presumptive hedges against macro weaknesses rather than an alternative currency.

Features of BharatCoin: the presumptive name for an RBI-issued digital currency

• Can carry the economy’s memory: as a proxy for a complex interlinked web of bilateral IOUs recording who owes what to whom.
• Potential to change monetary policy operations and financial markets:  in a manner that would rival the onset of central bank-governed fractional reserve banking.
• It would take precedence, guaranteeing trust and stability: to carry on being the economy’s memory.
• It would extend the central bank experience with digital currency to the masses: Central Bank Reserves (CBR) are already completely digital.

Benefits of BharatCoin: 

• Improved monetary policy: If RBI provides direct retail access to BharatCoin and pays interest on it.
  • With depositors having a choice between bank deposits and BharatCoin, the banks will pass on policy rate actions to depositors via their BharatCoin holdings.
  • By extending the lower bound of interest rates to negative. (more flexibility)
• Abolition of high-denomination banknotes: containing money-laundering and illegal transactions.