K.V. Subramaniam, executive director at the International Monetary Fund (IMF) and former chief economic adviser to the Government of India, discussed the distinction between CBDC and crypto. Additionally, he said that the banks would keep up with the development of digitization.
It’s critical to distinguish between cryptocurrencies and the CBDC (Central Bank Digital Currency), according to the former chief economic counsel to the Indian government. CBDC is a digital currency issued by the central bank, as opposed to the real currency we carry in our pockets and use when we need to give someone money. It will eventually become a component of the money in use, merely the central bank keeping up with digitization.
In response to the question of whether the central bank will need to adjust its money management by balancing the quantity of currency to be printed and issued in the digital format, Subramanian replied that it would depend on how the central bank views the demand for the CBDC. He asserted that the CBDC and fiat money are substitutes to each other.”
“Printing of currency is based on the demand for currency. Depending on how they see the demand for digital money (the CBDC), they will print. In some way, they are substitutes to each other.”
Banks are often seen as only a means of distributing money, but according to Subramaniam, they are its source.
He explained that the “financial intermediation” theory says you can only lend what you possess. Banks, however, have much greater lending capacity than they do. First, they evaluate the borrower’s capacity for loan repayment. The bank then credits the deposit in the lender’s account after approving the loan, turning it into an asset. Therefore, deposits do not create loans; loans create deposits.
In India, interest in the subject has increased after the RBI started its pilot projects for digital currency. The Reserve Bank of India (RBI) announced its intention to introduce the Central Bank digital currency in October (CBDC). In addition, the Central Bank launched the wholesale (CBDC-W) segment pilot program on November 1 and recently discussed plans for a retail (CBDC-R) segment pilot with the media.
According to reports, although the wholesale CBDC is only intended for certain financial institutions, the retail CBDC can be used by everyone, including the private sector, enterprises, and non-financial customers. Additionally, the bank has not made any public statements regarding the conclusion of the successful wholesale business pilot.