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The central bank digital currency (CBDC) may have implications for cross-border payments in violation of laws, a RBI report said.

“CBDCs providing anonymity may also have implications for cross-border payments in violation of extant acts; appropriate safeguards against AML/CFT would need to be laid down,” RBI said in its 2020-21 Report on Currency and Finance.

The copy of the report is in possession of this platform.

CBDC also poses a risk of disintermediation of the banking system, more so if the commercial banking system is perceived to be fragile, said RBI.

The public can convert their CASA deposits with banks into CBDC, thereby raising the cost of bank-based financial intermediation with implications for growth and financial stability, it said.

In countries with significant credit markets, commercial banks may lose their primacy as the major conduit of monetary policy transmission, RBI said.

It also has other views on CBDC.

The premier bank said that the advanced economies having low growth and inflation and facing the constraint of “zero lower bound”, CBDC can help them overcome the constraint with the monetary authority offering negative nominal interest rates to its holders.

It further said the CBDC can act as an instrument of sterilisation, alleviating the constraint that a finite stock of government securities in the central bank balance sheet poses in emerging markets facing large scale capital inflows.

A standing deposit facility can also play a similar role, but CBDC, if designed to cater to not only wholesale institutions, but also retail individuals, could directly improve and fasten transmission, RBI stated.

 

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