Bring in CBDC to keep tabs on mushrooming virtual currency

Time is ripe for the government and the RBI as well to expedite the process of introducing central bank digital currency (CBDC) so as to curb the massive use of virtual currencies whose circulation, though illegally, has gone beyond the roof now. This step will go a long way in stalemating the cash in circulation (CIC) too, which has surged to a record Rs 29.4 lakh crore as on October 29. As a percentage of gross domestic product (GDP), it rose to a record 14.5 per cent for the, fiscal 2020-21. The surge comes despite increased penetration of digital payments.

It goes against the basic premises, on which demonetization was imposed five years ago. For starters, the demonetization was imposed to kill two birds with one arrow. First, it was aimed at inculcating a habit among the common man to prefer digital currency to cash. Secondly, it was a kind of crusade against the hoarding of black money. Yes, transparency as an outcome of demonetization in use of currency did check black money to a certain extent. But, when it comes to use of CIC vs digital payments, it continues to be a debate if we really achieved our goal.

While almost 100 per cent of cash came back to the system pose demonetization, CIC has seen a surge since then. It is despite the fact that digital payments have also touched a historic height. As a percentage of gross domestic product (GDP), CIC rose to a record 14.5 per cent for the fiscal 2020-21. The surge comes despite increased penetration of digital payments.

However, an internal report by SBI has a different story to say. It says that latest currency in circulation has remained constant over the previous year even as record purchases happened during Diwali at Rs 1.25 lakh crores. This happened for the first time since 2014.

Rather, it expresses satisfaction over the fact that Indian consumers have now migrated big time to better technology platform like UPI, which has jumped 70 times in last 4 years, that does not require the intervention of a POS machine and factor authentications.

However, the study has emphasised the need of regulatory interventions of both Central Banks and Government so that database can be harnessed and stored and also used for real time policy making. Secondly, the government is currently busy in framing the necessary guidelines for the proposed rolling out of CBDC in its bid to wage a digital war against the virtual currency, which was being operated from foreign soil at the moment. Not to mention, virtual currencies are just like cat out of the bag as the RBI doesn't have any direct control over these virtual currencies and hence it has been raising its concern on such currencies from time to time. What with the former RBI deputy governor, NS Vishwanathan raising a voice of concern against these currencies of late.