CBDC In India: K.V. Subramaniam, executive director at the International Monetary Fund (IMF) and former chief economic adviser to the Government of India in an interview with The Print’s Off The Cuff event on Tuesday, talked about the difference between CBDC and cryptocurrency. He also mentioned that the banks will be keeping pace with the advancement in digitization.
There have been increased demand and chatter about digital money since the RBI started its pilot projects for the same.
“We need to distinguish between cryptocurrency and the CBDC (Central Bank Digital Currency). Unlike the physical currency that we carry in our pockets, when we need to give money to somebody, CBDC is basically a digital currency issued by the central bank. In some way, it will be a part of the currency in circulation, and that is just the central bank keeping pace with digitization,” said the former chief economic adviser to the Government of India.
When asked if the central bank will have to recalibrate its money management by balancing the amount of currency to be printed and issued in the digital format, Subramanian said, “Printing of currency is based on the demand for currency. Depending on how they see the demand for the digital money (the CBDC), they will print. In some way, they are substitutes to each other.”
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Banks are not just “parceling” money
Subramaniam also talked about banks being thought of as just a medium of parceling money however, he says, that it’s the creator.
“The fundamental flaw in this is that banks are actually money creators, they are not just passing the parcel,” he added.
“The theory of financial intermediation thinks that you can only lend what you have. But in real life, banks can lend much more than what they have. They assess the borrower’s ability to repay the loan. Once they grant the loan, the bank then credits the deposit in the lender’s account, which becomes the bank’s asset. So loans create deposits and not deposits create loans,” he explained.
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