Digital currency an idea that can go far, but will RBI explore it?

 Skepticism is high about "Retail Direct" because previous attempts at bringing public debt to the masses haven't gone anywhere

India’s central bank is opening its balance sheet to the public. Retail investors will have online access to the government bond market via investment accounts with the Reserve Bank.

As the government’s investment bank, the RBI manages institutional buying and selling in gilt securities. Skepticism is high about “Retail Direct” because previous attempts at bringing public debt to the masses haven’t gone anywhere. But if the initiative takes off, it could be a precursor to an interest-paying digital currency competing with bank deposits.

The idea of a central bank digital currency, which will reside on smartphones but as a direct claim on the state (rather than a bank) is gaining ground everywhere. Covid-19 has made people reluctant to handle cash for fear of infection. The pandemic has also underscored the need to extend timely financial support to people who don’t have bank accounts.

The rise of cryptocurrencies and Facebook Inc.’s Libra initiative, now known as Diem, have made authorities sit up and take note. If they don’t offer their own official tokens, private coins — or another country’s virtual cash — might fill the vacuum. Any semblance of monetary sovereignty in emerging markets may be compromised.

A quarter of the world’s population is likely to get access to a general purpose central bank digital currency in one to three years, according to the latest Bank for International Settlements survey of monetary authorities. Regulators in another 21 per cent of jurisdictions aren’t ruling out the possibility that they, too, might join in. That number is up from 14 per cent in a 2019 BIS poll.

Unlike China, which is running pilots, and the European Central Bank, which will soon publish results of its public consultations, India is not a frontrunner in the race to issue virtual cash. While summing up the many changes in the payments landscape over the past decade, the RBI said last month that it’s “exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalize it.”