Indian Banker and Former RBI Governor, Raghuram Rajan expresses opinion about crypto

Former RBI Governor, Raghuram Rajan states that the central banks are opting for CBDC's, bitcoin and Libra could play a prominent role.

By · Aug 20, 2020 . 8min read

Central banks worldwide are analyzing the possibility of publishing a central bank digital currency (CBDC), with some already trialling theirs for various uses. Countries with advanced digital currency projects include China, Singapore, Canada, the Bahamas, Thailand, Uruguay, and Sweden

CNBC’s, “Beyond the Valley” podcast states that in a world where central banks are opting for CBDC’s and Bitcoin, Facebook-backed Libra could play a role. Former RBI Governor, Raghuram Rajan, said that the two digital currencies could have a place when central banks enter the bandwagon. Raghuram Govinda Rajan is an Indian economist and the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business.

“I would like to think that these private currencies are also in competition with the central bank digital currency,”

Rajan told CNBC’s “Beyond the Valley” podcast.

CBDC’s V/s Bitcoin and Libra

Governments’ central bank supports Central Bank Digital Currency(CBDC). Additionally, it suggests that they hold the liability, not your private bank. Digital currencies have significant implications for central banks and retail lenders. They can change the entire financial system’s face. 

Libra is a global currency and financial infrastructure. Precisely, it is a digital asset developed by Facebook. The new Facebook-created version of the blockchain powers it. This year, the Libra Association applied to receive approval from regulators to publish a digital currency backed by one currency. That would indicate the consortium’s digital coin may be equivalent to a euro or a U.S. dollar. 

Launched in January 2009, Bitcoin is a digital currency. It follows the concepts set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto. Bitcoin provides lower transaction fees than traditional online payment mechanisms. It is operated by a decentralized authority, unlike government-issued currencies.

Raghuram Rajan’s opinion on Cryptocurrencies like Bitcoin and Libra

RBI’s Rajan considers bitcoin as a “speculative asset”. He believes that the primary use of bitcoin is for transactions on a large scale. Maximum investors invest in bitcoin when conventional assets are unattractive. He believes that gold, unlike bitcoin, has some value. Nevertheless, it has value because others think it has value.

Raghuram Rajan further elucidates that the development of Libra is for enhancing transactions. He believes that it is not to hold as a speculative asset which increases in value. Central banks will determine the ultimate underlying value. The central banks will further preserve the value of what Libra in respect to its exchange parameters.

 “So the bottom line I think is different private currencies will do different things, and it may be bitcoin has value going forward just as a store of value, or as a speculative asset. While Libra may be the kind of currency which is used more for transacting,” Rajan said.

Stablecoins are a rapidly growing segment of the crypto marketplace, and a CBDC is a natural extension of that existing trend. CBDCs might not have been the original idea of blockchain and crypto, but the continued development of them is good news for blockchain and crypto adoption. 

Conclusively, India has also introduced the digital rupee in the country’s draft cryptocurrency bill. On March 4, 2020, the RBI banking ban on crypto was set aside by the Supreme Court. Earlier, we also reported on how the PMO aims to open opportunities in Blockchain in India. Thus, with India turning to digitize its currency and opening different avenues for the crypto ecosystem, we hope India transforms the crypto ecosystem.

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