He said that the idea of central bank digital currency (CBDC) is mature and that many central banks around the world are working towards it.
Sankar further said that CBDC is needed to protect consumers from the “terrifying level of volatility” seen in some of the virtual currencies that are not sovereignly backed.
He said central banks around the world are participating in the exploration of CBDC, and some countries have also introduced such concepts.
“Perhaps the idea of CBDCs is close,” he said while participating in an online discussion hosted by the Vidhi Center for Legal Policy.
In India, a high-level inter-ministerial committee constituted by the finance ministry has examined the political and legal frameworks and recommended the introduction of CBDC as a digital form of fiat money in the country.
“Like other central banks, the RBI has also been exploring the pros and cons of introducing CBDC for quite some time,” he said, adding that countries have generally implemented specific-purpose CBDCs.
The Reserve Bank, he said, is currently working towards a phased implementation strategy and examining cases that could be implemented with little or no disruption to the banking system and monetary policy.
“… piloting in the wholesale and retail segments may be a possibility in the near future. So some progress has been made. You know we could probably get there in the near future,” Sankar said .
The lieutenant governor also said that legal changes would be necessary, since the current provisions have been made taking into account the currency in physical form under the Reserve Bank of India Act.
He said consequential amendments would also be required to the Coinage Act, the Foreign Exchange Administration Act (FEMA), and the Information Technology Act.
“These are some of the things that … we are analyzing internally,” he added.
The lieutenant governor further said that some of the key issues the RBI is examining include the scope of CBDCs, the underlying technology and the validation mechanism.
He also highlighted some of the risks associated with digital currencies, such as the sudden flight of money from a bank under stress.
“There are associated risks … but they must be carefully weighed against the possible benefits,” he added.