Bitcoin : Crypotcurrency Can take The Place Of Cash In India

RBI which recently banned regulated entities from dealing in digital currencies in India. But at the same time another interesting concept is being developed globally i.e. central digital currency. In the similar pattern can RBI issue its own digital coin the way its issue its own digital note.

The most important function of that coin will be to provide general public an expansion in choice for deposit account.
It would provide safety of the sovereign like in currency notes .And at the same time provide interest on that which are zero interest bearing instruments and holders get no return.

It will be a cheaper option than other instrument. Because it will save cost of printing, transport, safeguard and carry out forensics on duplicate notes. This saving will ultimately help the taxpayers

It will have the ability to transfer the currency anywhere and to anybody with the help of smartphone.

Monetary policy transmission will be smoother and efficient since RBI borrows from some counterparties, but they are very small in numbers mainly the licensed banks. Here everyone who is holding the coin will be a counterparty

If RBI raises policy rates, the bank refuses to pass on the entire rate hike to depositors, here RBI will be able to pass the benefit directly without involving the bank. This will have a great impact in the economy

The cost of Government debt will also come down. The primary source of income of any central bank is the issuance of currency notes eg if 100 units are printed than the central bank holds an equivalent of government bond in the balance sheet. Since RBI pays no interest on currency notes but makes the spread between the yield on the government bond it holds. This earning is used in tax cuts or development.

In case of slowdown of the economy RBI may have to reduce rates even sometimes to a negative levels, Eg if policy rates (-2) and yield 0% then the counterparties will convert their reserves in masses with central bank. This can be countered with digital coin as it gains more acceptance.

It will also increase competition for banks and they will start providing extra service to its depositors