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economy | IST

CNBC-TV18 explains: Pros and cons of central bank digital currency

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Former RBI governor D. Subbarao said transactions in cash are anonymous and it do not leave a trail, while CBDC transactions will be traceable.

Two years back currency was a simple word -- it meant notes and coins in our wallets. Today the word means a lot more -- there is a bunch of cryptocurrencies, there are stable coins and now central banks are going to issue their own digital currencies.
In an interview to Latha Venkatesh, former RBI governor D. Subbarao said, "The standard concerns about virtual currencies are that they could become vehicles for illegal activities such as money laundering, drug trafficking, tax evasion etc, those are government's concerns. Reserve Bank of India's concerns could be about monetary stability, financial stability and external sector stability by way of capital flight."
He expects central bank digital currency (CBDC) to mimic and have all attributes of cash.
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"Central bank digital currency, I believe, will mimic cash in every way except that you cannot touch and feel it because it is digital. Otherwise it will have all the attributes of cash, which are: It is unit of account, a medium of exchange and a store value. Unlike cash today, it will be on the central bank’s balance sheet, it will be a liability of Reserve Bank of India (RBI). However, there is one important difference between cash and CBDC, which is that transaction in cash is anonymous, there is no track, it doesn't leave any trail. On the other hand, a transaction with CBDC will be traceable, it will even have a trail behind it," Subbarao said.
Watch video for more.