Anonymity in CBDC payments may mostly be same as cash payments: RBI Dy Guv

The degree of anonymity in retail transactions undertaken through Central Bank Digital Currency (CBDC) will “most likely be the same as that prevails for cash, Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar said.

“The degree of anonymity that we need to achieve, this is especially for retail payments, what is most likely is that the degree of anonymity that you achieve is the exact same as the anonymity that prevails for cash. Which means there is anonymity for small value payments, beyond a threshold there need not be any anonymity, it can be reported data,” Rabi Sankar said at a session organised by policy think tank ICRIER.

Sankar said it will have to be decided whether achieving anonymity of transactions can be done using technology or the law. “How this anonymity can be achieved, whether it can be achieved through technology by killing transactions…or whether it will be achieved by law by restricting access to data that remains with the central bank. These are the things that we will have to decide as we go along.” he said. Presently, transactions above Rs 2 lakh have to be reported for tax purposes.

Chief Economic Adviser V. Anantha Nageswaran, also speaking at the session, said there is decisive paradigm shift when it comes to privacy and anonymity, which CBDCs might take away. “…It is not just a question of anonymity required for convenience of tax evaders or other people using money for illicit transactions, there is a natural sense of privacy and certain aspects that people value even if they are not lawbreakers,” Nageswaran said.

Citing the example of Bahamas, Nageswaran said it has exempted small value transactions, but to undertake slightly large value transactions proofs and KYC are required. “So I can understand that the anonymity argument to some extent is diluted by the fact that there are already a lot of disclosure requirements,” he said.

Rabi Sankar said that one of the ways central banks globally are looking at cryptocurrencies is an exact digital version of the sovereign or fiat currency. “This is the way we look at it, CBDC would be one-to-one convertible with the sovereign currency” he said. He added that it will not pay any interest as currency is not a financial instrument. Another way of looking at CBDCs is that they are a variant of central bank’s liability.

“As far as India is concerned, we are just looking at that as just a digital currency, no distinction whatsoever,” Rabi Sankar said.