When money becomes digital, Bitcoin and Libra will be the future
During the podcast ‘Beyond the Valley’ hosted by CNBC, the former top central banker said the private digital currencies could be looked upon as a competition for the central bank’s digital currency.
However, he further also said that the digital currencies whether cryptos or the CDBC’s could have a greater impact on the entire financial system. They may also suggest and assist the role of the central bank and retail lenders.
“I would like to think that these private currencies are also in competition with the central bank digital currency,” Rajan said.
He also said that when more and more central banks around the world are on the way to issue their own digital currency including Federal Reserve, the Bank of England, and the Bank of Thailand and the People’s Bank of China who has already rolled out their CDBC’s on trial, Bitcoin and Libra could be an important part of the financial system.
“Bitcoin and Libra could still find a purpose to be part of a future when money becomes purely digital,” said the ex-governor. However, he also mentioned that Bitcoin, Libra, and CDBC’s all have their own roles to play.
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Bitcoin Will either be a Store of value or a speculative Asset But Libra is for Transaction
According to Rajan, Bitcoin currently has managed to gather immense attention from the investors, and hence investors shift their focus on it. He says that it happens when the traditional form of investments become less attractive. He believes that Bitcoin is a speculative asset that cannot be used for transactions on a large scale.
On the other hand, Libra, which claims to be a stablecoin, backed by different central banks worldwide could possibly be used for the transactions. After the extreme opposition from the various governments, Facebook-backed Libra is now able to scale itself and is now awaiting approval to create stablecoins backed by one currency.
The former governor says that both bitcoin and Libra would compete with the CDBC’s in different ways. And as CDBC’s are backed by the fiat currencies which are the legal tenders can be used both to transact and store value. Whereas, bitcoin will be used by the people to store value like gold and Libra to carry out transactions.
“So the ultimate underlying value is going to form the central banks, they’re going to preserve the value, not of Libra but of what Libra can be exchanged into,” Rajan said.
Also read – RTI Response on Indian Crypto Ban Cabinet Note Reveals Ground Reality
Data incorporated with the digital currencies, the matter of concern
The ex-governor also raised concern over the security of the data which digital currencies comprise. He said that people currently depend more on cash transactions as they don’t want to get tracked by the authorities.
“The beauty of the cash in your hands is that it’s anonymous,” he said.
However, Rajan said that in the due course, there is the need to integrate the data between the two competing digital currencies as the whole system cannot be disintegrated into small fragments. Moreover, he also raised more questions regarding the security of data that needs attention. He strongly believes that there is need for a broader rules of the game. He goes on adding;
What are countries going to do with data collected from abroad on who uses their currency? How do you make sure that the usual safeguards on that use are there? If somebody uses foreign digital currency to buy certain services that could compromise them, can they be liable to espionage and blackmail, etc? And those are concerns that are not farfetched in today’s world,”
While these questions alarm the vital issues, creators of private cryptocurrencies and CBDCs must rethink on the development of new currencies.
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