The potential of digital currencies like bitcoin is "being overstated", a senior official for the Reserve Bank of India said in a speech today.
Speaking at a financial technology conference in Mumbai, RBI deputy governor Rama Subramaniam Gandhi took critical aim at the tech, arguing that the widespread belief that digital currencies will replace government-issued ones is overblown.
Gandhi – who has critiqued digital currencies in the past when discussing the central bank’s research into blockchain – told attendees:
"Blockchain, the foundation for bitcoins-like innovations, is touted to be the death knell of currency. I believe its potential is being overstated. We can see that in these types of solutions for virtual currency, there is no central bank or monetary authority. They pose potential financial, operational, legal, customer protection and security related risks."
The deputy governor based his argument on two points: that most people won’t be confident enough in the system to use a digital currency without an issuing authority, and that a "difficult to track" cryptocurrency does not make it anonymous – an attribute he considers a key feature of a currency.
"Therefore, it may remain a pipe dream that blockchain will eliminate ‘currency’, by ushering in ‘virtual currency’," he said.
"The 'confidence' in bitcoins or for that matter any virtual currency based on blockchain or any other technology is also limited to its initial rounds and circles only," Gandhi went on. "The initial rounds are always filled with adventurists and risk seekers; the moment masses get in, the risk-avoiders get in, they will need greater 'confidence' for acceptance and that can come only if an 'authority' issues it."
However, Gandhi indicated he was "glad" about blockchain research undertakings at the Institute for Development and Research in Banking Technology (IDRBT), which is backed by the RBI.
"There is a movement to make use of blockchain technology for virtual currency by the central banks themselves," he said. "Of course, this calls for lot of research."
Ghandi image via YouTube