Former RBI governor D Subbarao on Monday said there is a strong motivation for the central bank to launch a digital currency and cash is going to coexist with the new-age currency.
Addressing an event virtually organised by economic think tank NCAER, Subbarao further said cybersecurity is also one of the downside risks of the Central Bank Digital Currency (CBDC).
"There is a strong motivation for the RBI to launch CBDC... Cash is going to coexist with CBDC," he said.
The former RBI governor also noted that privacy is also going to be a big issue when the RBI launches the digital currency.
Recently, RBI Deputy Governor T Rabi Sankar had said the central bank is working on a phased implementation strategy for its own digital currency and was in the process of launching it in wholesale and retail segments in the near future.
He had also said the idea of Central Bank Digital Currency (CBDC) is ripe, and many central banks in the world are working towards it.
While observing that if the RBI launches CBDC, the control of the central bank on money supply will be weakened, Subbarao said there is also issue of financial instability.
Replying to a question on cryptocurrencies, Subbarao warned that cryptocurrencies could become a vehicle for taking money out from countries like India and China.
"There is a certainly case for regulating cryptocurrencies..These cryptocurrency assets can be used for money laundering," he said.
Subbarao, however, noted that cryptocurrencies are here to stay as speculative assets.
In India, a high level inter-ministerial committee constituted by the Ministry of Finance has examined the policy and legal frameworks, and has recommended the introduction of CBDC as a digital form of fiat money in the country.
Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to regulate the generation of their units and verify the transfer of funds, operating independently of a central bank.