India Likely to Join CBDC Race

The Indian Reserve Bank could also be looking to launch its own central bank digital currency (CBDC) as a counter to the proliferation of private cryptos and stablecoins in the country.

The race for the introduction of CBDCs has been heating all over the world with China expected to be the first major country to introduce it sometime in the first half of next year, Though this is likely to be a positive development for the digital asset industry, the regulators in several countries are viewing this introduction as a means of stopping the growth of cryptos and stablecoins in its tracks. They have been unable to track or contain the growth of private cryptos over the years and rather than trying to shut down the industry as a whole and risking spawning an underground industry around crypto, they believe that the CBDCs would be able to wean away from the users from such cryptos as the CBDCs would provide a government backing making it regulated and more trustworthy than private cryptos. Also, the regulatory control would continue to hang over the cryptocurrencies which would eventually reduce their patronage among the mainstream users, which is what the various regulators believe would happen in the long term.

But the introduction of such CBDCs, especially in large countries is fraught with a lot of risks as its impact on the existing financial ecosystem needs to be thoroughly studied to ensure that these risks are mitigated. In the US, there is still a bit of confusion on what technology needs to be used for CBDCs with some in the Fed believing that blockchain may not be able to provide the needed infrastructure and speed to house such a major project like the CBDC. It remains to be seen what approach the regulators in the US would be taking to launching the CBDCs as studies continue to be done by the authorities regarding its introduction and usage. On the other hand, China seems to have its stables cleared for the launch of CBDCs as it has gone ahead with its ban of private cryptos and their mining and has also been undertaking several tests for the use of CBDCs and looks pretty much set to launch it next year.

With different regulators still in a state of flux over the use of CBDCs, there is likely to be a lot of research and trial and error around the CBDCs in the coming years though it is clear that the digital currencies are here to stay.