Former governor of the Reserve Bank of India Raghuram Rajan has speculated in a CNBC podcast that Bitcoin and Facebook’s Libra cryptocurrency may finally emerge as competitors against Central Bank Digital Currencies (CBDC). Issued by Central Banks, CBDCs are expected to work as good as common cash and notes issued by central banks, with the American Federal Reserve now setting the stage to issue digital dollar through federal accounts.
Although a lot of the impetus to create a working central bank digital forex was gained from Facebook’s announcement of Libra, Rajan points out an issue with the highly awaited cryptocurrency. While it seemed bold on paper, security precautions were obscure, he points.
The contradiction with Facebook was that while it wished to ‘grow to be a world forex’, little information was provided regarding how knowledge could be dealt with in a secure manner.
Bitcoin, Libra will live on
Rajan also expects competition between central banks to drive the growth of CBDCs over the coming years, however, that doesn’t diminish his expectations for personal currencies resembling Bitcoin and Libra to live on. With more and more Bitcoin traders typically championing it as “digital gold” and choosing cryptocurrency over fiat counterparts, that doesn’t seem unlikely.
Findings from ‘The Group of 30’ report
The rapid evolution of the digital currency landscape has been well captured in July’s ‘The Group of Thirty (G30)’ report titled ‘Digital Currencies and Stablecoins: Risks, Opportunities, and Challenges Ahead’.
Speaking about the publication, Rajan, co-chairperson of the G30 Working Group on Digital Currencies, opined that while digital currencies have significant benefits, they may also put at risk user funds and data privacy if poorly executed or overseen. Policymakers need to approach these transformative technical developments with due awareness, receptive of opportunities but also cautious of possible hazards.
Monopoly with CBDCs a big no
Rajan also remarked that just like private digital currencies, it will be equally problematic if there is a monopoly with CBDCs without safeguards on management of the currency and handling of data involved. It will be beneficial to have competition for both private as well as digital currencies backed by central banks, he added.
Despite evaluating Bitcoin as similar to gold in terms of value, the former banker and economist feels private digital currencies like Libra-a stablecoin currently under development and linked to fiat currencies-will gain preference as a medium of transaction.
