Reserve Bank of India (RBI) deputy governor T Rabi Sankar on Saturday said there are potentially game-changing choices available in the use of central bank digital currency (CBDC), especially in cross-border transactions, where digital currency can remove the inefficiencies in terms of settlements.
“We just create the infrastructure and leave it to the private ecosystem to build on it and develop it,” he said.
The RBI earlier this week allowed CBDC for retail payments on a pilot basis for four banks in the first phase.
The central bank also allowed use of digital currency for wholesale banking for settlement of government bonds. The RBI is ready to try other use cases of CBDC, Sankar said, adding that the next step could be applications in blockchain.
Banks should be alert in adoption of technology, as what seems to be a small part of the business might come to change the entire system, he said. Sankar cited the case of the hugely popular UPI, where a bulk of the business is owned by non-banking entities because banks missed the bus by not investing in the change from early on. “When a revolutionary technology comes up, it might initially affect a small part of business. Scaling that up, improvising and innovating on that to affect the rest of the business is just one small step away. You miss the first step, you miss the train,” Sankar said, adding, “Clearly, banks missed a step here. Probably, the feeling was that these small-value transactions might be relatively too insignificant a bill to put your resources and effort into to develop the necessary technology and internal ecosystem.”
“Banks are here to stay, but banking is mutating fast,” Sankar said, adding that it’s a misconception to view fintech entities as a possible replacement to banks, stressing that these modern-age enterprises facilitate banking and are not a competition to banks in anyway.