Why Central Banks Are Wary Of Privately-Held Crypto Coins And Want Their Own Digital Currencies?

The RBI wants to leverage the blockchain technology to offer a safe, robust and convenient alternative to cash that it can manage

As more and more people weigh their options to invest in crypto coins, a debate is gaining ground on Central Bank Digital Currency (CBDC). Authorities all over the world are exploring the possibility of introducing their own crypto coins, which are backed by the country's central bank or reserve. But why is there a need to do so? There are already thousands of crypto coins in circulation, including the prominent ones like Bitcoin, Ethereum, etc. One of the main reasons for a central bank (for instance, Reserve Bank of India) thinking of its own crypto is necessitated by the uncertainty about the privately-held coins.

When the debate was heating up, the RBI had made clear it was against private crypto coins and was exploring ways to issue its own coin. The RBI wants to leverage the blockchain technology that powers the crypto world to offer a safe, robust and convenient alternative to cash.

In December last year, the RBI said it was in favour of adopting a basic model of CBDC initially and using the country's payment system architecture as a backbone to transition to a state-of-the-art CBDC system. With a basic model, the transition will be smooth with minimum impact on monetary policy and banking system, it added.

Similarly, the US Federal Reserves has also released a paper that it said examines the “pros and cons” of a potential CBDC. The paper noted that a CBDC could provide a secure, digital payment option for households and businesses as the payments system evolves, and could also result in faster payment possibilities between countries. However, it added, that there could be downsides as well.