A work half-done is never a work well-done. Similarly, a work not even undertaken will reek of an ignorance but read here more of dilemma rather than incompetence. No country in any part of the globe should have such a vacillatory attitude towards a fast-emerging technology which will provide the fastest wings to the Central Bank and the Government of the land. This dilemma is more pronounced in countries having a democracy. Democracy is already a decentralized political machinery and if further decentralized fintech is added then the cracks of underdevelopment and un-development can be stitched firmly. The government is answerable to people so will have no cover for underperformance or no performance.
We have a new breed of millennial economists and technocrats paving the way for a fintech revolution. These projects are chasing all the regulatory bodies in different countries and challenging them. Mobile play, basic peer to peer activities to disrupt the existing set up is the face of this movement. It cannot be denied that the whole environment of the fintech is a place of uncertain certainties and uncertainties. Still a country with a big economy like India should not adopt a ‘touch me not attitude’ be it CBDC, digital currency, cryptos, digital assets, exchanges or any product which is the byproduct of the fintech revolution.
There had been talks of a digital currency, ‘Lakshmi’ since 2017, In this year in the budget session the same issue of digital currency was to be taken up. The solemn intention is to reduce the intermediaries in payment settlements and to give the central bank tighter control over bank frauds. Prime Minister’s Jan-Dhan Yojana created bank accounts for direct transfer of subsidy to create financial inclusion. and accounts for direct payment of subsidy. De-intermediation of agricultural marketing has been done under fierce resistance from the intermediaries.
All this leads to the obvious route of adoption of blockchain and DLT based economy. Blockchain is the only viable technology that has the ability to support complex payment workflows — providing greater traceability, security and transparency whereas the multiple copies of the transactions in DLT create the immutability of records. The natural corollary is the digitalization and tokenization of the economy. Buckling down at this juncture means abandoning control over the monetary policy as well as the fiscal policy and overall decoupling from the global economy which is fast tokenizing.
India can have all the safety measures with Wholesale as well as Retail CBDCs. Perhaps the biggest risk is cybersecurity. So it is better to have a Hybrid CBDC with the Central Bank as the issuer and the banks, financial intermediaries and institutions as the Retailers directly connected to the Users and creating the KYC and AML checks. Retail ones, which can be the Digital Rupee for the Financial Inclusion taking over Jan-Dhan Yojana accounts. The Wholesale one can run on top of all the settlement systems operating in India like, ACH (Automated Clearing House), IMPS (Immediate Payment Service), NEFT (National Electronic Funds Transfer), RTGS (Real Time Gross Settlement), UPI (Unified Payments Interface) and glides forward setting the tone for the real quick cross border settlements.
All powers are intact and new powers too get added with the ability to create incentives through programmable money and to keep track of digital transactions. The dilemma is misplaced and unwanted. We need to do the course correction. The Government of the land and Public need to work jointly in the most trusting manner as it is a huge task to digitalize the full economy and multiple sectors of the society in India.
Finally, right now Bahamas Sand Dollar, a retail CBDC and Cambodia’s Project Bakong, a DLT based payment system for financial inclusion are the two active CBDC. When most of the countries of the world are discussing and creating purposeful assumptions for their country, then why should we lag behind. China is on the forefront. It introduced its CBDC in pilot form in the major city of Shenzhen and plans to use it in the 2022 Winter Olympics. These are opening new spheres of collaboration and competition across the globe. We will have to choose our strategy.