In some form, cryptocurrency has to stay here, and to catch up with it, we must. Nandan Nilekani, Non-Executive Chairman of Infosys and Voice Advocate of Digital Technologies, echoed the sentiment. Speaking at an event on Tuesday, he said current cryptocurrencies can serve as valuable stores like gold, but not for transactions. In India, as he explained, digital payments are effectively made through our Unified Payments Interface (UPI), an advanced platform for bank transfers established by the National Payments Corp of India (NPCI). Compared to cryptos’ energy-hogging shared-ledger system, it moves money virtually without cost. He suggested that the latter could enter into a formal economy, which would oversee the legitimacy of their use. Our central bank has declared itself in favor of issuing its own digital rupee and recommended that the distribution structure of UPI go a long way.
True, we should not be bedridden by cryptos. They use electrical energy not only for their mining, but also to maintain a wide range of ledgers distributed across the Internet for utilization certification. Such blockchain operations provide security for transactions, but at a much higher cost. Recent predictions by Cambridge University researchers suggest that bitcoin has changed dramatically; It will now increase from 67 in 2020 to over 120 terawatt-hours per month. According to the university’s bitcoin power consumption index, the machines running it require more electricity per year than the Netherlands, with a population of about 17 million. However, central banks around the world, including us, are playing with the idea of digital currencies. The primary goal is to gain the prominence of their Fiat money by dismantling cryptos. These e-tokens play the same role when made with ‘stable’ coins’ subject to the same variable-supply rule as regular currencies. They can also se for other purposes. China’s digital currency project, for example, targets global use for commercial bases. Furthermore, the official digital token could give its issuer strict monetary control in the future cashless economy, especially under certain circumstances, requiring the imposition of negative interest rates on savers in the event of very low inflation. Sans cash, people have to accept the terms that their central bank gives on digital deposits that it has directly (or other banks). We need to suppress inflation and ban paper cash in order to work in India. And there is another concern. If we could all have digital accounts (or wallets) at the Reserve Bank of India (RBI) for our day-to-day transactions, we would no longer need other banks to park our money. Since the money kept at RBI is completely safe, this option threatens the deposit-based banks, which have to offer us a large risk premium on interest rates.
Clearly, the RBI will not launch a digital currency without an internal currency-utility analysis. However, if our economy is evolving to benefit from it, it is better to create one. For now, we need to encourage the use of UPI. For this, NPCI as a share of the market total should leave its bizarre 30% limit on the transaction volumes of any UPI based application. Can’t imagine that any commercial application can reduce its business, hit a defined target in relation to the work done by its competitors