Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Saturday that India continues to maintain a cautious approach toward cryptocurrencies. At the same time, the country is encouraging the development and use of technologies associated with crypto assets, including ‘Distributed Ledger Technology’ and tokenisation.
Malhotra explained that India supports innovation in technologies linked to crypto assets. These include ‘Distributed Ledger Technology’, which is essentially a decentralised digital record-keeping system, as well as tokenisation. However, concerns surrounding monetary sovereignty, monetary policy and capital flows have led India to remain cautious about cryptocurrencies.
What is Distributed Ledger Technology?
Distributed Ledger Technology is a digital system in which transaction records and other information are not stored in a single location. Instead, the records are distributed and shared across multiple computers within a network. This structure can help create a more transparent and decentralised way of maintaining digital records.
What Does Tokenisation Mean?
Tokenisation refers to the process of converting ownership rights over a real-world asset or sensitive information, such as a credit or debit card number, into a secure digital token. This technology can be used in several areas where secure digital representation of assets or information is required.
What Sanjay Malhotra Said at the Kautilya Economic Conclave
Speaking at the Kautilya Economic Conclave, Malhotra said, “Our approach has therefore been to promote the underlying technologies, and we are using some of them within the central bank as well as externally through public-private partnerships (PPPs). But as far as crypto is concerned, we have adopted a cautious approach.”
Explaining the concerns surrounding cryptocurrencies, the RBI Governor highlighted issues related to ‘monetary uniformity’, which refers to maintaining a common and consistent value of money, as well as the possible impact of cryptocurrencies on monetary policy. These concerns can become particularly significant for emerging economies where restrictions on capital flows are in place.
Cross-Border Payments Remain a Key Challenge
Malhotra said that the main problem cryptocurrencies are attempting to address is not necessarily domestic payments. According to him, domestic payment systems in India and several other countries have already become faster, cheaper and more convenient.
He said, “The problem that is being attempted to be solved is primarily not domestic payments, because in our country and many other countries, domestic payments are now quite fast, cheap and convenient.”
According to Malhotra, the bigger challenge lies in cross-border payments. He said alternatives such as Central Bank Digital Currency (CBDC) could be considered to address some of these challenges.
Rising Government and Private Sector Spending
Speaking about rising public debt and increasing bond yields globally, Malhotra said that changes in yields are fundamentally driven by demand and supply.
He noted that spending by both the government and private sector has been increasing. The growing use of Artificial Intelligence (AI) is also contributing to higher expenditure.
“Money is Limited, Spending Has Increased”
Malhotra said, “Money is limited; spending has increased. Spending by the government as well as private companies has increased, with AI playing a role. This is what is leading to an increase in bond yields and debt.”
The RBI Governor also explained that the central bank’s monetary policy primarily focuses on domestic economic growth and inflation. However, changes in global interest rates can also affect India, including their impact on real interest rates within the country.
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