CBDC: Tread cautiously
The present exuberance of central banks across the globe towards issuing CBDCs (central bank digital currencies) is understandable given the slew of ostensible benefits it offers to the financial system.
As far as India is concerned, the RBI has been ushering in a raft of measures to promote the use of CBDCs. After having issued a concept note on CBDCs in October 2022, the RBI has launched pilots of CBDCs in both the retail and wholesale segments.
While the wholesale segment involved the settlement of secondary market transactions in government securities, the retail segment was launched with a closed user group covering select locations.
Although CBDCs bring a plethora of benefits — ranging from bringing down the operational costs associated with physical cash management to making cross-border payments cheaper, faster and more secure with their settlement features — the RBI needs to exercise caution. It cannot simply overlook the possible negative repercussions on the country’s financial and monetary systems.
This refers to ‘Funny money’ (September 7). We have seen that retail investors tend to enter the stock market when it is on an upward trajectory or bullish phase. And in today’s age of social media, it is easy for influencers to manipulate retail investors as the latter do not want to do the hard yards of research and check the credentials of these so-called experts. In this context, it is heartening that SEBI has proposed the idea of Performance Validation Agency which will immensely help retail investors take informed decision. Also, retail investors should learn to be patient as markets can never be on a single trajectory; bear and bull phases will remain a critical aspect of the markets. Only someone who remains invested for long will reap benefits.
Rythu Bharosa Kendras
This refers to ‘One stop farm shop, a flop’ (September 7). The failure of this scheme shows how a well-targeted one-stop scheme can fall flat if not properly financed and implemented. To nurture this scheme, political will and a better monitoring mechanism are the need of the hour. Also, FPOs and the formal credit system should be strengthened. If left unchecked, this well-intentioned scheme would end up benefiting no one.
The article ‘Problem posed by converging nominal, real GDP’ (September 6) suggests India needs to grow, on average, at 7.4 per cent in real terms over the next four years to become a $5 trillion economy. This is based on inflation averaging close to 4 per cent and the rupee depreciating by 2 per cent each year. But there are problems that have cropped up partially due to the multiple shocks seen over the last couple of years — the pandemic, Ukraine-Russia war and aggressive monetary tightening.
Globally, these have led to a decline in not just actual output but also potential output.
The latter is an economy’s maximum capacity to produce without being inflationary, and defines the long-term growth trajectory for a country.
Also, utilising our large labour pool to the best possible way holds the key. However, India is resilient and best positioned to weather the economic headwinds, as seen in the past too.
N Sadhasiva Reddy