On August 20, 2020, Raghuram Rajan shared positive remarks on the future of crypto by claiming that both bitcoin and Libra could coexist well with central bank digital currencies (CBDCs).
Rajan, the former governor of the Reserve Bank of India (RBI), believes that all three forms of currency bring something different. He further stated that financial systems should adopted the currencies to prevent any single asset from establishing a monopoly.
In an interview with CNBC, Rajan stated that bitcoin and Libra could still find a purpose in the traditional international system, even as governments rush to issue CBDCs.
According to the ex-RBI head, bitcoin has gathered immense attention from investors, particularly as a store of value. Libra, on the other hand, is more suited for large scale transactions as it is a stablecoin backed by various fiat currencies.
Therefore, both Libra and BTC could offer healthy competition from CBDCs, preventing government-issued currencies from becoming too powerful.
On the flip side, Rajan explained that digital currencies also require safeguards to prevent tech giants like Facebook from wielding tremendous influence on the entire financial system.
CBDCs Come With Data Concerns
Rajan also floated the idea that the lack of anonymity in government-issued currencies could pose a problem.
The ex-RBI head noted that CBDCs come with a lot of personal data, which raises concerns over whether central banks and governments should be trusted with it.
He added that the beauty of cash and other privacy-based currencies is that they are anonymous and therefore serve to bring some useful competition to central bank digital currencies.
“The reality is that there’s a lot of data that’s going to be generated by the digital currencies which can be used for the good or the bad. And therefore, some competition is useful,” he emphasized.
BTC and Libra Could Compete with Sovereign Digital Currencies
Rajan, who also served as the International Monetary Fund’s chief economist, sees a future where Bitcoin and Libra would compete with the CDBCs in different ways.
This perspective is very positive for the crypto community, especially from a former head of the RBI. The Reserve Bank had previously implemented a total ban on crypto in India.
Rajan believes that central banks fear that stablecoins like Libra could displace several national currencies across the world.
To achieve acceptance from financial watchdogs, he stressed that Libra has to offer greater clarity about its plans. The digital currency from Facebook would also need to build trust over its privacy concerns.