Need for CBDC emerged due to threat posed by stablecoins: RBI Deputy Governor

According to Investopedia: "Dollarization is the term for when the U.S. dollar is used in addition to or instead of the domestic currency of another country. It is an example of currency substitution. Dollarization usually happens when a country's own currency loses its usefulness as a medium of exchange, due to hyperinflation or instability."

Until now, the RBI had taken a wait-and-watch approach towards central bank digital currency (CBDC), which has changed after the advent of stablecoins.

Rabi Shankar said the CBDC can be considered as a means of financial payments with advantages whereas earlier it was the thinking was that there was nothing much a CBDC could achieve that digital money could not.

The question now is how to go about implementing it as there was no question of whether to go for digital currency, he said.

"The current model of correspondent banking gives scope for improvement in cost and time efficiency. This requires that CBDCs are available not just in one country but in others as well and there must be CBDC systems that talk to one another. Whether that happens through bilateral arrangements — only time will tell,” Rabi Sankar was quoted as saying by TOI.

It is possible to do digital transactions, rupee and dollar, even in the middle of the night, he said.

“Stablecoins are a much bigger threat in terms of dollarisation than in terms of crypto being used for small value or other transactions. Tesla initially said it will accept crypto but withdrew. One of the reasons is extreme volatility,” said Rabi Sankar, quoted TOI.