[Podcast] CBDC - Can RBI make a big leap into the future with digital currencies?[Podcast] CBDC - Can RBI make a big leap into the future with digital currencies?

[podcast]

 

Highlights

There is a lot to unpack about this new digital currency RBI is talking about. Deepak and Shray built up the discussion by pondering over successive questions.

Deepak takes us through how cryptocurrencies currently work. This sets up the context to the current ways of handling digital currencies and we move on to discuss the RBI-backed digital currency - Central Bank Digital Currency (CBDC).

How CBDCs are not cryptocurrencies? And how are they different?

Imagine you can have a format of cash, instead of a rupee note, issued by the RBI that you can store, transact and transfer as per your will. But this is something you can do with your bank account too. But, here you actually don't need a bank. CBDCs give you the facility of dealing directly with RBI and being a direct customer of RBI because CBDCs sit in a ledger (decentralized or not) maintained by the RBI.

Is CBDCs actually required or is it a response to the popularity of cryptocurrency? So basically, why now?

There are a lot of use cases for digital currency in India. The simplest ones include giving specific subsidies like food subsidies, etc. The government can transfer the subsidy via CBDCs to the beneficiary who can then use it for that specific purpose only. So a CBDC transferred for buying ration cannot be used for paying rent. This is even better than direct cash transfer to bank accounts where you are not sure how the cash is being utilized.

Not just subsidies. CBDCs can be used to create impulses in the economy too. Suppose, the government decides to boost some part of the economy, say travel. The government can issue a travel CBDC to everyone to use only for travel. Sure, we have Leave Travel Allowance (LTA) for it right now but it comes with its own complex execution mechanisms. A digital taken that can be instantly used with IRCTC or some travel aggregator can be a game-changer.

Is the CBDC likely to be anonymous like cryptocurrencies?

It's a myth that cryptocurrencies are anonymous. If someone figures out your wallet address, they can see all your transactions on the blockchain. So they what you own, what you transferred in & out, and to whom. This is something no one is comfortable with because who wants to know the world what they earn and how they transact.

So much transparency can be annoying too. Imagine someone tracking your wallet now knows that you have a certain amount of money and then calls you to sell you a ULIP. Banks do it even today but at least only when you have an account with them.

Can CBDCs be an alternative to the SWIFT system given how Russia has been isolated by the world right now?

Russia is the NOT first instance. The US & the west has done this sequestering of foreign reserves twice earlier too. First with Iran and then with Afghanistan. So if something pisses off the west, right or wrong, they have the power to stop all your international trade.

Deepak explains

• How these reserves are kept in foreign banks
• How transitions happen in dollars between parties
• The basics of this ecosystem in simple language with examples
• How CBDCs can be used to make countries less dependent on such “sanctions” from the US

US banks do earn a little commission from all international trade that happens in dollars. So when India trades with Vietnam, US banks earn a fee. How is this fair!

There is a huge strategic advantage to internationalize the rupee with CBDC or something else.

Impact of CBDC on Monetary and Fiscal policies?

The money supply doesn’t actually increase by the amount RBI prints. It increases by the amount the banks actually lend out. So RBI can try to influence the monetary policy but it has this huge limitation. Deepak explains this complex interplay between RBI & banks due to the CBDCs.

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Full Transcript

Shray Chandra: Hi everyone, and welcome to episode 47 of the Capitalmind Podcast. In today's episode, we take a look at Central Bank Digital Currencies or more specifically, the digital rupee. We compare on contrast CBDCs as they're known with cryptocurrencies. Talk about privacy, anonymity. How a digital rupee could impact the internationalization of the INR. How CBDCs impact the banking system and monetary policy. CBDCs are probably going to start finding their way into your financial life. So listen in to hear how Deepak is thinking about and preparing for this inevitable transition. Oh, and do listen in all the way to the very end to get a discount code for a Capitalmind Premium membership. So Deepak, during the budget, the government announced that they're looking at creating their own digital currency, a CBDC right Central Bank Digital Currency. At the same time, they said that crypto assets or cryptocurrencies they'll get taxed at something like 30 percent, and there's also this one percent TDS, which has thrown people into quite a tizzy because there are some differing interpretations on what that means. And so people are pretty interested. Where does the government created digital currency fit into this? So maybe my first question should be what is a CBDC? And is it kind of like a cryptocurrency just in another way? Or is it just very different?

Deepak Shenoy: It's a good question you know Shray, the problem with CBDCs and if you look at CBDCs from a perspective of what they are versus what they're not. It's important to say what they're not. This concept of a cryptocurrency is very different from perhaps what we think of is a CBDC. I'll tell you why? A cryptocurrency is like this, why is it a cryptocurrency? You want a centralized block, you want a decentralized blockchain. This is a blockchain that says, well, you know what, if I take your block of transactions and do a certain set of cryptographic operations on them, well, or some kind of an algorithm on them, and then that block gets written onto the chain one block after the other and then that's the blockchain itself. The reason you need crypto is that nobody can modify that block once it's written into the block so that you have a cryptographic hash of it that's available and says, well, you know what, if he's modified this block, the hash won't work and therefore it won't match and, you know, all sorts of things. Now I could give a copy of this blockchain to anybody in the world and right from the beginning of the bitcoin world, where there was perhaps no bitcoin or 100 percent of the bitcoin was available to nobody. To the point where transactions started to happen, a few people started to get bitcoins, you can now look at every bitcoin from its beginning to the end by just traversing the block from bottom to up.

Deepak Shenoy: That's a cryptographic blockchain, so effectively the reason it's cryptographic is because you don't want people to be able to kind of hack it and put their own transactions in the middle and then change everything. Because if they did, then your copy of the blockchain and the hashes in it would not match anybody else's and therefore yours would not be valid. Invalid blockchain, you know, blockchain stuff exists all over the world, so that's why they say you have to validate it. This means there are a bunch of people who have blockchain nodes, each of them storing the blockchain itself. When a new block is added all of them have to validate it if you have an unvalidated block, it isn't entirely clear to you that the transactions inside that block have been, are OK because you know, only when enough people validate the block does the next block get added on top of that earlier block. So, therefore cryptographic operations in the blockchain take time. And then the complications of Oh, if I paid you now, I have to wait for 20 minutes before you validate my transaction and so on. That's what cryptography... But if you take the cryptography part of it out of the way, it's just a database with transactions. You know, it's just one transaction after other.

Deepak Shenoy: But it's immutable in the sense that if you change something, then you know your blockchain gets invalid and therefore you're not validated by anybody else and therefore you're [00:05:00] a pariah because you know you've tried to modify the blockchain. The good thing about this is a database that can be shared with a lot of people. All of them have it. This is, you know, a concept of a cryptocurrency. A CBDC on the other hand, is a completely different beast. Think of it as a database maintained by a Central Bank. Ok. Now the Central Bank has a database already, so what are we talking about, you might ask Deepak what? What is? So let's go one step back a little and say, what is this thing that the CBDC does that's different? Think of cash. Every rupee note you have, apart from the one rupee note, has a saying on it, saying this certifies that the Central, the Reserve Bank of India owes you, owes the bearer a sum of 100 rupees or 50 rupees. So the idea is that if you have a note, this currency note, it's actually something that the RBI owes you. So if you go there, technically, you should be able to get 100 rupees, but he won't give you 100 rupees. He might just give you another promissory note saying here is another.

Deepak Shenoy: So essentially, the cash is a promissory note from the RBI. It is your asset, but the RBI's liability to you. Otherwise, you have no dealing with the RBI. If you go to the RBI without a rupee note, it will say, I don't know who you are? I don't care who you are? I don't deal with people like you. It's because you have the rupee note that you are effectively a customer of the RBI. If you think of it, you having a bank deposit in the RBI, your rupee note is effectively that. Now, think of that as a digital format. Now you have deposits with a bank, a bank like a State Bank of India, HDFC Bank and so on. Your deposit is just one bank statement in your net banking or your app or your, you know, ledger or a passbook or whatever it is that tells you that you have so much in that bank. Now HDFC Bank certifies that you have this kind of balance, and you know, there are a bunch of rules that go around it and so on. Think of RBI having the same thing for you, and that is a CBDC in the sense that you could have a format of cash, which is instead of a rupee note a CBDC issued by RBI. It would come to you and like cash, it would not earn any interest like cash, it would be transactable by you and transferable by you, to anybody else without needing any permissions.

Deepak Shenoy: It would be like UPI, you know, transactable at any point in the day like cash is as well. It would also be something that has a certain degree of security in the sense that the RBI that's maintaining it. So to a large extent, we trust our financial system in the sense that unless banks grow up in any major way, you don't lose your money at the bank itself in the sense of the bank has a certain safety attached to it, but also that the RBI has even higher degree of safety because its liability to you is in rupees. And that rupee is what RBI is allowed to print, so it can technically create more rupees and pay you. If for any reason there wasn't enough rupee to pay anybody, they could print more and pay them. So you are dealing with an entity that can print rupees and therefore you don't have any issues with the credit. I mean, you are looking at so for instance, if I lend to SBI tomorrow, SBI comes out of the statement saying I have 25 percent NPAs. I start getting worried about my money, say if you have 25 percent NPAs, maybe you can go bust or something like that.

Deepak Shenoy: The RBI is super safe that way because it prints the rupees. It doesn't lend to corporates. It doesn't lend to, you know, arbitrarily anything. So its exposure is therefore far safer. So CBDC effectively creates this layer that says it's like cash, except it's in the form of a digital form. It's also the only way that I can have an account with the RBI directly. Otherwise, I could not have accounts with the RBI directly, now I can. CBDC is a very different concept from cryptocurrency. In the sense, crypto is decentralized. Well, it's centralized in the sense some rich, powerful people control it anyway. But we get the nice, warm, fuzzy feeling because it is "decentralized". But anyways, here there's no warm, fuzzy feeling. It's just RBI, and that's warm and fuzzy enough for a lot of us. And you know, the difference in operation is it's digital in the sense you cannot, it is not, you don't need to physically own a piece of paper to demonstrate that you have rupees, that an app that has it, maybe some kind of identifier. In the crypto world, they call it wallets. Here they may call it something else. Maybe it's your PAN number, maybe it's your Aadhaar card number. I don't know what it is, but whatever that [00:10:00] identifier is, that identifier helps you tell that this person has so many rupees sitting with the RBI.

Deepak Shenoy: That's all CBDC is or should be, but it has some interesting complications in the sense that you could make a CBDC more programmed. The government could give CBDC to some people to spend specifically for a certain purpose. It's like medicines, COVID vaccines, for instance. So the way food stamps work in the regular world is the government gives food stamps. You take those food stamps and give it to a vendor. You buy food from that vendor. That vendor has to go to the government to claim the cashback. Fairly easy stuff but if you did this with, how do you do it with digital currency? Because there's no coupons involved. You transfer a CBDC, it can only be used because only that person can claim back that actual amount for using this special, maybe it's a series. Think of a rupee note that was only usable for food. That rupee note would be useless for the food vendor because he can't use it to pay his rent, so you'd have to exchange it for regular rupees. So imagine a CBDC see that you get only for a specified purpose. The person who receives it has to go back and change it for regular rupees. There's a difference between what a regular rupee is and what this is. So interesting from very, very different angles, but I think we should not confuse it with cryptocurrency.

Shray Chandra: Ok, so I'll just pick up on a few things that you said. The first point was, in general, I think most of us don't spend too much time worrying about the health of our banks. But I guess just, was it just a couple of years ago we had that, was it PMC Bank or something where your money did get kind of frozen for a while or under certain limits in the Yes bank issue I don't think anyone lost money, but your shares were kind of hurt, but so that makes sense. I just wanted to point out on cash toh we're probably one of the few countries, which has a bit of a painful story with cash in 2016. So to that extent, even cash wasn't fully safe for us at some point.

Deepak Shenoy: Yes, because I mean, you are standing in a line, they refuse to accept it. And then eventually they accepted all the rupee notes came back, you came with. I mean, so in the end, it was a useless exercise but it ruined people's trust, and this breaking of trust is a really nasty behavior that the government I don't know how they got away with it once, but I don't think anybody will get away with it again because doing this to people who and the poorest of the poor in the country have a lot of cash. The richest of the rich may have some cash, and we overhype that in a lot of our publications around black money and all that stuff. But it's largely the poor who hold and run cash. They're the ones that are inconvenienced the most when that stuff happened. I don't know if CBDC is one of those formats, and we should.

Shray Chandra: So my next question is actually why now? Like when you hear about a digital currency, I mean, that was why I asked the first question as well. You think that this is kind of a response to the popularity of cryptocurrencies and it's like, well, don't use their cryptocurrency, let's use our digital currency or whatever. But as you pointed out, it's not really the same thing. In fact, there's fairly significant differences and so on. So I just wanted you to maybe talk about this, why now? I mean, is there something special about technology that has made it possible now? I mean, isn't UPI kind of like a digital currency in some ways? I mean, just as ignorant as that question is, or maybe I'll put it in this more layman's terms. How would a CBDC either help the government or us as citizens in any way? Maybe that would be a better way of looking at it.

Deepak Shenoy: It's interesting, because why would the government want a CBDC in the first place? So first, there's a digitization of cash. Now there's a reason for this. India has a fairly large cash component of transactions, and as you get larger and larger in terms of transaction sizes, people then want lesser and lesser of physical cash, but more and more of regular. Because there's also limits beyond twenty thousand rupees, you can't transact very easily because people ask you for PAN cards and all sorts of things. The government wants to make it easier for people to be able to use a currency, which is like cash, but not exactly cash. But they also want to be able to say distribute subsidies which are targeted at the right population because you could, for instance, some things you can't do right now is I'll give you money that you have to use within one year. Now, if you don't use it, now casinos do this all the time. When you walk into a casino

Shray Chandra: Oh chips, those chips they give.

Deepak Shenoy: The chips, they give you special chips that says you can only use these once. So if you use them in a game and you lose them, they're gone. If you use them in a game and win something from them, whatever your winnings are, are encashable. Ok, but the chips themselves are not encashable. So the minute you finished your casino round, if you're left with any of these entry-level chips, you're finished, so you might as well use them and then hope to win something back

Deepak Shenoy: Versus not [00:15:00]. So same thing with rupee. So let's say I was looking at a point where the GDP was not moving for whatever reason, we wanted to encourage people to spend on something. I don't know what that something is. Maybe it is on travel let us say. So any form of travel that you do, maybe a bus, maybe a train, maybe a plane gets a certain, you know, component and you get money. We call it Leave Travel Allowance let's say. I could give a Leave Travel Allowance to somebody saying, here is this money that you can only spend on travel. That means it cannot be spent on anything else other than travel. It has to be spent on travel. So it means you take a rail ticket you can pay using this. We go to the railways, you know, Indian railways and say, well, when you accept payments on IRCTC or something like that, there's a way to pay using CBDC. You pay using a CBDC, you can use this special digital currency voucher I've given you to apply to that. When IRCTC gets it, it says, well, I'll claim it back from the government. It goes to the government and says, listen, this person booked this ticket today or this person travelled today, and the government says fine, if you're convinced that he has travelled, then I'll pay you. So that way IRCTC cannot fool the government by keeping on giving it vouchers when people haven't travelled.

Deepak Shenoy: So in a way, it becomes, you know, of course, people can cancel the voucher. And then if you use a voucher and then cancel your ticket, you get nothing back because it was supposed to be used for travel and then you have to go claim. So it's a complicated system, but it can be designed such that a person can use a certain money only for a certain way. Now this is egregious in the sense. Money should be fungible, but certain types of money which are created in an unearned format. In unearned format being the government wants to subsidize something, they want to make something happen, which has a very specific purpose. The problem that happens is that if I gave you money to buy rice and you went and bought alcohol instead, it might help the government in a similar way. But they actually want you to buy rice because if you buy more alcohol, you might just die. And that was not the purpose of why you were being given this money in the first place. So please buy rice instead. How do you kind of differentiate between the two? Is to use this for our food voucher or food stamps business, which is what the West does, but you could do a Central Bank Digital Currency as well. This is where I think India might take a leap because we have already a fairly large acceptance of UPI.

Deepak Shenoy: So if we used such a voucher and transfer it to everybody's UPI bank account in a way. I don't know, I mean, it's not even a bank account, it's just an account in the RBI right. So you could just say, well, you've got this much. Use any UPI app and pay, but you can only use this particular CBDC for a certain purpose. You could have many purposes, many kinds of CBDC, and then you could have the general format CBDC, which is usable for anything completely fungible at different levels. And all of this together forms a layer of CBDC, which the government can use to target subsidies. It can use to create time-bound. So I could say, you know, destination bound. So that means you can only use it for medicines or I could say time-bound saying you have to use it within six months. If you don't use it in six months, it matures, expires, whatever, whatever, and then it's unusable after that. It promotes that kind of usage. This is very interesting from a perspective of not just public, but even private experiences. You, for instance, I mean, if you went to a place where there was, so what happens when you sign on to a Swiggy or a Zomato is that they tell you that listen if you sign on to us, we'll give you a 30 percent discount on your first order. Now, why do they do that? They want you to start ordering so that you can continue.

Deepak Shenoy: You'll find the use of this first 30 percent discount in order to be able to use at you know, all these restaurants, you could do this in different ways. You could do the same thing saying, listen, I'm Swiggy, I have all the restaurants within my system, ecosystem, and therefore you can use this 30 percent discount at any restaurant in my ecosystem. They could go one step away and the government could say, I am not gonna even bother about how many restaurants are in my ecosystem. You can use this voucher at any restaurant in India as long as it's registered as a restaurant, that person will give you 30 percent less and he will claim this 30 percent from the government. Whatever that number, up to 100 rupees, whatever it is. This can be more meaningful because it will not limit you to specific geographies or, you know, systems like Swiggy does, which is only that or Zomato does, it's only their enrolled restaurants. But as a government, you want it to be available everywhere and anywhere. It could give you, for instance, CBDC to be used at toll roads. [00:20:00] The idea being that certain people, now today, for instance, a judge or central, a judge from a High Court or a Supreme Court does not have to pay toll. Now why are you creating a system where the guy flashes his card and says, I'm a Supreme Court judge, somebody has to go verify that this guy's a Supreme Court judge and then say, OK, sir, please go.

Deepak Shenoy: Why are you giving them beneficial treatment? Say ki boss here's a CBDC, when you reach a place, put money in your FASTag with this CBDC and it can be used on any toll. Now don't tell me that you're going to get a free ride. You're not going to get. I'm going to dismantle all these road signs that says High Court judges and Prime Minister of India does not pay toll. Why? You want to subsidize them fine. Put the money into their account and let them travel. And if they're abusing the system, that means the Supreme Court vehicle is being used 500 times a day to travel from one toll to the other and saying that I'm a Supreme Court judge and he's not even in the car because many of the times they'll just give their who is going to argue with a judge, right? Instead, you give them the CBDC seat thing. Suddenly, you can find out why is the judge traveling 500, you know, times a day between Delhi and Jaipur when he's supposed to, he's actually in the court most of the time and then you realize there's abuse and then you can actually crack down on this abuse. And it's not like our judges are corrupt.

Shray Chandra: Well I assume they don't have the time for this. Well, I actually just in fairness, I always thought this was about skipping lines rather than saving the cost of the toll. But I guess it could be a bit of both.

Deepak Shenoy: It is about skipping lines. But they make it an argument saying we are special because we're doing a service to the government we shouldn't be charged a fee. Well, fine don't charge the fee but get into the same line. And you know what, FASTag have done that already saying you don't need special lanes for these people. Everybody get into the same line.

Shray Chandra: And it'll happen fast.

Deepak Shenoy: It'll happen fast enough. So if we did this, I think, you know, the response of the popularity of, to come back to that part, the reason cryptocurrencies are popular is because it's just another way to speculate on something that is endlessly, you know, big. And as we have seen in the Ukraine Russia crisis, the price of Ukraine, a price of bitcoin actually fell 10 15 percent before this crisis.

Shray Chandra: Not what people expected, right?

Deepak Shenoy: Not exactly. So that means it is actually not that popular in a crisis. If it was, there would be a lot more in terms of people buying it like crazy and all that. Of course, it'll switch down 10 percent, up 10 percent at any point in time. It is meaningless really to be able to use something like this in a crisis, whereas a CBDC, well, to a person who is being, say, vilified by a government, it would obviously be a bad thing because their ownership you know then goes away. But if you created a structure that allowed it to be reasonably anonymous, then you could have a situation where regardless of and you know, I'll come to that but

Shray Chandra: Yeah, so I'll just jump in here. And I guess based on what you've said, as a citizen of the Republic with this currency, I guess you have some mixed feelings. I mean, obviously, to the extent that it would make, say, some work around the subsidy or something less effort, be digital and faster, that would be obviously a welcome change. On the other hand, everyone feels a little nervous if your money could potentially vanish in a year, you feel that you have to now be more on top of things or you feel a bit controlled if you can only use money here in certain use cases. But I imagine that there's an efficiency argument to be made which could address that. I was just going to come to that next point you raised, fine, ok as the citizens, you have some benefits, you have some losses. But one of the points on cash is that it is fairly anonymous, although that seems to be going away as you've also pointed out. It's only up to a certain number of thousands you're not allowed to have more cash than that, you need PAN cards above that, and all that good stuff. Is the CBDC likely to be anonymous? Should it be anonymous? Where do you stand on that?

Deepak Shenoy: So this is interesting because people think that bitcoin and all of these other cryptocurrencies are anonymous. At scale, there is no anonymity in the blockchain. Let me tell you why? If you buy something from me, I know your wallet address. Most likely, you're not the kind of person unless you're really tech-savvy to have hajaar wallets. So that means you have one wallet and you send money from that wallet. Once I know what wallet you've sent me money from, I can go back and identify exactly how much money you have. This is so bad that once people discover this, they will be like, come on, I'm never paying you with bitcoin, ever in my life again. The other possible alternative is you create one temporary wallet, transfer money to that wallet and then pay me. Worst case, worst thing that happens is when you do that, you expose the fact that you have transferred from your main wallet to the secondary wallet and then paid people. Once you would make enough transactions like this, you make your temporary wallets and transfer from main wallet, it takes me a few minutes to analyze the blockchain and figure out which your main wallet is [00:25:00] and exactly how much money you have. This is again, lack of anonymity at scale, which is a horrible thing because you don't want me to know how much money you have. And we all, I mean, all these people who are, you know, technologically evolved and all that are thinking that, oh, this is not a big problem, but it is a big problem. If I were able to publish all the politician's money and you know, this whole thing would be banned in a flash like bitcoin would be banned tomorrow and nobody would talk about it.

Deepak Shenoy: Because not only would we be publishing the amounts that politicians have in their bank account, but it's also the amount of money that each media editor had in his bank account and each Twitter user had in his bank account. And therefore nobody would talk about because they, come on, you can't do that. So this anonymity that is afforded by crypto is close to zero. Anonymity afforded by bank accounts is fairly large. In the sense, the bank account knows it, which is how all your relationship managers and hundreds of other people call you as soon as you put any reasonable sum of money into your bank account that you should buy a ULIP. So there is anonymity at some level in the sense everybody doesn't know. But enough people know that they can call you for a ULIP whenever you have enough money, even perhaps less anonymous or more anonymous as cash. In the sense, you have cash unless you flash it around in your house and unless you've done that or you, most probably you just kept it in someplace that is safe. People don't know you have that much cash, and therefore it's anonymous. And if you transferred that money to somebody else, that transfer would also be anonymous in the sense nobody would know where you made that transfer in the first place. So it's very, very anonymous. Can a CBDC be that? And that's the use case because if you want to compare it to cash, it has to be something that is, so I would say the CBD in India would have to be anonymous, at least to a certain extent.

Shray Chandra: So this reminds me of like how when Paytm and all first started you could up to maybe was it ten thousand or something you were allowed to get away with some very rudimentary KYC, which may not have been a KYC or whatever? So something along those lines

Deepak Shenoy: Something along those lines, so you might have to give your name and all that stuff, but not your PAN number and not your this and not your that. Once you cross 50,000 rupees, then you have to give a PAN number and then you have to give a certain amount of detail and so on. So to encourage the idea that you can replace cash with this, that first 50,000 then becomes free for all. Now, of course, at some point, if there are more than 100 crore accounts or 200 crore accounts, or 140 crore accounts which is more than our population, the Central Bank can start asking questions, saying what are we doing? There are people with multiple accounts which have more than 50,000 rupees. At which point you might say, listen, sorry, but we've got to clamp this down a little bit more and you can do that with technology. Same machine having multiple accounts, locking phone number to a CBDC account or some kind of an ID to a CBDC account beyond a certain point. So a number of transactions, more than five transactions will lock you in and all that stuff. There can be another thing, for instance, you I don't know if you know this, but above, so if a court convicts you of even fraud. Everything of your all your assets can be sequestered and put somewhere else, but you can't do this to a PF, which is your, sorry, Public Provident Fund if you have a Public Provident Fund, nobody can touch that. Even if a court orders. Now this is great because then people invest in the Public Provident Fund if they think that, you know

Shray Chandra: This is a problem that they have to worry about.

Deepak Shenoy: Or sometimes if you're like, for instance, if you're a political commentator and you know you get on the wrong side of whoever is in power, they can frame you and put you in a CBI case and forever.

Shray Chandra: But this one, I at least have access to this.

Deepak Shenoy: Yes. So that way it is a little bit, you know, of a safety kind of a mechanism. Maybe the CBDC can offer that safety up to a certain limit as well, which allows you to say, invest in the CBDC and now I'm just throwing this out there because we don't know what it is. But this anonymity part, I think, is very required up to a certain amount and that certain amount can be as much as 50k per person or 50k per account, with the caveat that somebody has to be going around in the background, figuring out if people are creating a lot of such accounts and then, therefore, finding them and targeting them, which is not at all difficult for any fraud investigative kind of mechanism to be able to easily do, because eventually, you should. So CBDC will be funded in some way. The government either gives you the money or you fund it from your regular bank account. Remember you have an account with RBI, so if you want to fund your RBI account, a regular bank has to pay you or the government has to pay you. There's no other unless RBI prints money to pay you, which is not going to do. So either the government is going to pay you or the RBI is going to pay you. [00:30:00]

Deepak Shenoy: Now if the government is going to pay you, then it's a government account instead of the RBI that pays you. If a bank account is paying you, which is let us say, there is a private company that wants to pay you in CBDC. They will instruct their bank to transfer to your RBI account this much money and therefore it's you know, kind of transferred. This is a different mechanism from anonymity in the sense it means that if someone is paying you, the government or a private bank or a public bank. That they know who this person is, who has paid you. They can go to the person who paid you and say, who is this person? And why have you paid him? And therefore find this person, I mean, find your identity if they really, really wanted to. But, I think that is like, you know, that's a little bit difficult to say you will never be able to do, because once everything is digital, people can always go back one level higher and say if you've paid somebody or somebody has paid you so you went and bought jewelry using CBDC. That jewelry shop may have a CCTV camera. They can find out at what time that CBDC was spent.

Shray Chandra: Will be no breadcrumbs in that.

Deepak Shenoy: There's breadcrumbs out there so that anonymity may be ephemeral at extreme cases where you're a criminal and they wanna catch you. But I think for normal day-to-day operations, it's safe to say that anonymity should be assured, at least to a certain extent.

Shray Chandra: I think I get this. You had mentioned at some point that, I mean also when you look at the current situation in Europe with Ukraine and Russia, that CBDC can actually if you think of it, can spark some ideas in your mind of how India can also in some ways create a, the beginnings of an alternative to a swift system, to the dollar reserve currency where you talked about how what's happening to Russia is a bit unnerving at some level. It'll help internationalize the rupee and also changes how you think about the Indian banking system a bit. Can you talk more about that?

Deepak Shenoy: Yes. So you know Shray, the problem with understanding this whole, you know, this whole crisis around Russia and Ukraine is, there is an egregious thing happening, and I will not talk about the motivations of the war and who needs to be & censured and what? What they have done is to say we will sequester the reserves of the Central Bank of Russia. This is a big problem because they've done this thrice now. They've sequestered the Central Bank of Iran's reserves. That means Iran has generated reserves by trading oil. Now they can't use the reserves because the U.S. has said sorry, but we won't allow you to touch those reserves. We let it go. Iran is too small to bother. Afghanistan, The Taliban took over $750 million that was sitting in the accounts of the Central Bank of Afghanistan in the US accounts. That has also kind of been sequestered away. Not just sequestered, it is not sequestered. It's not even them saying, like Iran, you can't use these reserves. They said we're taking them away from you. It's gone. We don't want to deal with you, and you no longer have this money, so if Afghanistan, for instance, sold dates to India and we paid for them in dollars and those dollars made their way to the Central Bank of Afghanistan's reserves, Afghanistan literally gave us those dates for free. Except we, of course, paid for it. But the U.S.

Deepak Shenoy: took that money. This was number two. Now they're doing it with Russia, where they're saying, if you have Euro or the US dollar reserves, we will not use them. So it's important to understand how this structure works when you have reserves when you call reserves. There is no Indian bank that hold dollars. Even the RBI doesn't have dollars. What it has, is an account in an onshore U.S. bank that has dollars, so only an onshore U.S. bank can have dollars. That U.S. bank has dollars and those dollars are held by various banks. It could be JP Morgan, Bank of New York Mellon or whatever. Every Central Bank has an account with them and then when you say you have reserves, it means that RBI's account at say JP Morgan U.S. or Bank of New York Mellon. U.S. has hundred dollars in an account whose name is RBI. And it may also have an account whose name is Central Bank of Russia. It may also have an account, so Russia's reserves are also onshore in that bank. India's reserves also onshore in that bank, so when India trades with Russia, India tells the Bank of New York Mellon saying, I'm trading with Russia, this is what I'm buying and this is what I'm selling, and therefore please transfer so much money from my account to the account of Russia. So it could

Deepak Shenoy: It usually doesn't happen between Central Banks, but what happens is it happens between an SBI in India, which is a banker of someone who's importing from Russia, and Gazprombank, which is an oil bank in the U.S. So the Indian oil importer, imports from this oil bank, this Gazprom, [00:35:00] which is selling it oil and Gazprombank, which is Gazprom Companies Bank, Banker, and SBI, both have accounts with say some two U.S. banks. They tell the U.S. banks, please transfer some money from yours to the other one. The Central banks come into play by stabilizing their own dollar currency because SBI says, listen, I need dollars to pay this Gazprombank. How do I get it? I go to the market, RBI is a player in the market. You say, well, RBI, I want to buy, I don't know $10 million. RBI says fine, I'll give you $10 million. RBI then instructs its own bank in the US, which is Bank of New York Mellon or whatever it is to transfer $10 million to the account of SBI's New York Bank whatever, and then SBI takes that 10 million and transfer it somewhere else. So this is a seamless operation, all happening in onshore banks in the U.S. This is how the U.S. is aware of every single trade that happens worldwide because anytime a trade is initiated, the U.S. gets to know.

Shray Chandra: Assuming it's in dollars

Deepak Shenoy: All Dollar trade yeah, and about 50 60 percent of world trade is in dollars, same thing with Euro. Now because these dollars sit in the U.S. in an onshore account or euro sitting in a U.S. onshore account in Europe in one of the banks. If they decide they don't like you, they can freeze it.

Shray Chandra: Not a very happy feeling.

Deepak Shenoy: And think of what Russia is going through now, it's like oh wait wait wait, you're gonna tell me that I can't use my money. And you're telling a nuclear weapon armed, the country with the most nuclear weapons in the world that you're going to steal their money. If you steal my money and I have a gun, what's the gun for if I don't use it? The chances that Russia will deploy its nukes or it even threatens to deploy its nukes or even raise, you know

Shray Chandra: Well, they've mentioned it.

Deepak Shenoy: They've mentioned it already. So it is a very stupid thing, but you know what it makes, be that it may be stupid. China and India are looking at this and saying, excuse me, you can't be using any excuse to whatever it is it could be for, we justified war. I mean, what's to say? The U.S. did not have any justification for their war against Iraq. They did not. They turned away they did not. They were warned, they did not. It turned away they did not. But there were no sanctions on American companies or American Swift system or anything like that. But Russia does it, and then suddenly everything is a big, big deal. This concept of one country does it, it's fine. Another country does it, it is not fine is not acceptable to, especially people like India and China. We're going to look at this quite seriously and say, listen, you have our reserves, you have 600 billion of India's reserves. We're not going to sit here and just keep quiet about this entire thing.

Deepak Shenoy: We have to think of something else now. What is this something else? The something else has to be something that I think India, so if you think about how India is as a country in BRICS, Brazil, Russia, India, China, South Africa. Well, South Africa is small so leave it out of this right now. But out of the big countries, all of the others are countries with the current account surplus, that means they export more than they import. Well, Brazil is also technically a little bit smaller and sometimes has a deficit. But India has a consistently large deficit. So you can only trade in a currency of a country that has a deficit. I'll tell you why? America has a deficit. So when you buy goods from America, you get dollars and you can use it to buy more goods from America, but otherwise if you keep selling your goods, it'll keep giving you dollars. Dollars are what it prints. So since it needs more than it exports, it's good because people who they export to have dollars

Shray Chandra: And they can buy more stuff.

Deepak Shenoy: The Americans have goods, so they're fine. What if it was the other way around, like in China? Now China, we sell, we have to buy from China. When we buy from China, let us say they ask us to pay in Yuan Renminbi and we go to them and say, well, you know what? How am I going to get Yuan Renminbi? You don't import anything for me. You just, I import from you

Deepak Shenoy: So when I buy from you, I have to give you Yuan Renminbi, how am I going to get it in the first place? So then China says, well, you know what I'll invest in your, this is why Japan invests in so many countries because it has to get a way for other person to have YEN in order for you to be able to pay Yen when you import from Japan. So China then goes ahead and invests in a lot of countries. But this is fraught with risk because projects can go bad and all sorts of stuff happen. So anything that's sustainable in the longer term is not, that a current account surplus country can use its currency. Only. So since in the BRICS, India is the only current account deficit country of any size, it's possible to use the INR. Now, if you use the INR, [00:40:00] that would mean that a person in Russia says, I'll give you oil and it uses the INR. Then it says, well, you know what? Where do I have the INR? It's obviously sitting at an Indian bank because the same concept of a U.S. bank or a European bank has to be in an Indian bank. Now they're thinking, dude some Indian bank, I don't know. It's just too risky for me. I'm saying, don't take an Indian bank, put it in the RBI. Take CBDC as a payment and now you have an account with the RBI. There is no problem of KYC because we know who you are and you know, you could all have accounts. So who gets to have accounts is not individual exporters, but banks.

Deepak Shenoy: Russian banks can or Chinese banks can have accounts in the RBI, and they will own INR in those accounts. If they send an instruction to the RBI saying, please transfer this to another person. So China is buying from Russia, they could use the INR as a, I'm just giving an example. I'm saying this is possible, but it may not happen for another 10-15 years. But I'm just saying that if you use a CBDC, the instructions from China would go to the Central Bank of India that is the RBI. RBI would then transfer from Chinese bank account with the RBI to Russian bank account with the RBI, and the Russian bank account would then have the INR and they would transition the goods themselves on their own. This provides an alternative to anything and Yuan has the same system. They're saying if you want to deal with Yuan, you just have to create account with Chinese banks and do this. But we could use the Chinese Central bank currency, a Central Bank Digital Currency, as a way to play that role as well. So you could do this with multiple currencies saying, Oh, you know what? Two of us, two different countries can trade in the Yuan, two different countries can trade in the INR and all sorts of things. There are lots of rules that need to change for this to happen, but it's very interesting that you know you could do this and or take build an alternative to SWIFT. SWIFT is controlled by the U.S.

Deepak Shenoy: RBI has the UPI. It's a nice framework. There's an ISO something, something 6022 or some number like that, which is all used by SWIFT for international transfer of currencies. Take that ISO standard implemented as a UPIish kind of standard. Then anyone can use it as a API based technology to send requests and authorize those requests. So typically in SWIFT what happens is you have to send a thing saying, listen, I need you to think of transferring money. You say, ok, well, now this is the time where I told you to think of transferring the money, now I actually have to transfer the money. Ok. Have you transferred the money? Yes, I have. Have you received an acknowledgment from the other fellow that they have received the money? Yes, they have. So this is all the way the SWIFT system kind of messaging works in different ways, and they have a bunch of other things saying, oh I want to open a letter of credit. I want to say that this bank will be the correspondent bank and this bank will be the nominated bank and so on for payments. It's a very complex system, but since it's embedded in a protocol, we could have a RBI create a system around this. They're very aware of what SWIFT can do and allow people to be able to use this protocol for making, you know, in giving instructions directly to RBI through say an NPCI. NPCI can kind of spearhead this effort.

Deepak Shenoy: This same concept can be implied in the inside of a UPI as well. Where you use the UPI, it kind of translates into signals like this, which allow you to create letters of credit, give loans. I mean, individual private bank can give loans against CBDC as a lien liability and so on. This is quite interesting because, for an external party, you remove the risk of the Indian banking system entirely. RBI has liabilities of rupees, it can print those rupees. So technically RBI for rupees is as sovereign and as risk-free as they come. RBI has no liability, I mean has no loans, it doesn't give out loans to people randomly, just Indian banks, and even if Indian banks do not say if it has the ability to kind of sequester that. There's a huge amount of risk control at the RBI level, so the RBI is not going to go bust. If you remove this, you can internationalize the rupee with a lot more confidence from an external party to be able to use it. So a South American country, which is also watching this Russia-Ukraine crisis and saying we need an alternative, can come to India and trade between each other in Indian rupees rather than U.S. dollars. Of course, the US is not going to take kindly to this, but I think we should start talking about it because if we build something like this over a period of 10 to 15 years, it will be a reality slowly.

Shray Chandra: That's quite interesting. I mean, not something I thought of when I initially thought [00:45:00] of food vouchers getting digitized. This never came to mind. I'll move closer to home for a second. How does a CBDC, in a sense, impact Indian banks or the banking system, per say? I mean, as a layman, I'd say, doesn't it make them a bit less powerful? I mean, they have less of your wallet share or whatever. Is that really not the case? So maybe my question is how do banks get impacted or react to a CBDC? How do you see that panning out?

Deepak Shenoy: This is, yeah, you know, the problem with banks really is that Shray the issue with banks in general in India is people are afraid that of a lot of things. First, that the bank will charge them dinky fees to do strange things. The banks do that all the time. They empty people's account without their, and they have to go. Now they are dealing with the RBI. RBI doesn't have any reason for doing all of this stuff. RBI is not a commercial entity, right?

Shray Chandra: Doesn't have quarterly targets.

Deepak Shenoy: Yeah, so it doesn't. There's no relationship manager trying to sell you a ULIP. If there is a guy, this is not a guy from the RBI, but you can

Shray Chandra: Warn him right there.

Deepak Shenoy: Warn him right there. Yeah right? So if you get a call saying I'm from the RBI, I want to sell you ULIP, you pretty much bang the phone down and never, block that number and never talk to them again. But more importantly, what it means now is that the RBI itself becomes a bank of choice for people to have their money. This is quite interesting because that means that, why should I bother to have my account at a bank versus having something at the RBI directly? The answer has to be interest rates. This is quite interesting for banks because till now, you didn't have a choice. You had to put your money in some bank or the other. And if you put your money in Bank A versus Bank B, there was not much of a competition saying, Oh, well, you know what? You put your money somewhere, so you might as well put your money here. If the banks went, like in a current account, offered zero percent interest rate completely, banks can easily get complacent and say, well, you know what, I'm offering an account at zero percent.

Deepak Shenoy: What are you going to do about it? The RBI can say, well, you know what, if you don't do anything about it, they will come directly to me and open a CBDC. And then work with a CBDC. So unless you give them credit, you give them a loan, which the RBI will not do or unless you give them high interest rates on their deposits. They are not going to come to you. So for me, for instance, if I think about it tomorrow, if they open a CBDC account open, I will move a reasonable portion of my money there because I'm spending that money on a regular basis. I would rather have it in an RBI than have it in our private sector bank or a public sector bank, because I just now not confident enough of the banking system to do this. The banks need to up their act and get more confident with the, you know, with their own actions. And that actions could be things like I need to raise more capital, I need to get better visibility, I need to offer higher interest rates or lower interest rates in case of credit. This will actually impact the way the banks behave. There's a lot of lazy banking in India, which is you talk to a bunch of corporates now they have accounts with you.

Deepak Shenoy: Now you say ki boss chhoddna yaar, paisa toh ban raha hai. How much ever we need to make, we are going to make araam se, because we are the only banks in town. What will you do? Leave me and go to another bank? They're also offering the same thing. You get a competitor in the form of an RBI for deposits. That means your lowest-cost funds will vanish. It's a very good thing. Banks will be forced to act and forced to provide more value to their customers and at the same time, the CBDC itself. So it's a threat to the banking system, but it'll be fully interchangeable. Change from, it's like the same rupee sitting with the RBI account versus sitting in the bank account. It'll be a quick switch. It should be a quick switch between the two. That means you click a button and you say, I want to move this to my CBDC account. One rupee equals one rupee shifted over there. How it happens in the background, is your bank has an account with the RBI. You personally have an account with the RBI. The money moves from your bank's account with the RBI to your account with the RBI, and you're done. It's a very simple transfer. It's just bits being moved from one place to the other.

Deepak Shenoy: NPCI is very good at this. This is why your UPI works 24x7, 365 days a year, by it moving bytes from one account to the other, many times with the RBI. In fact, this is also why your ATMs work because in your ATMs when you transfer money through the centralized system, money gets debited from your account, you know, and all of this is consolidated to the RBI in. It's very interesting that this entire system can be built without impacting too much in terms of banks. One of the things that banks will hate because especially if we did this thing that I [00:50:00] talked about, which is other banks in the U.S. and, you know, using INR, China and Russia using INR is that banks in the U.S., the correspondent banks in the U.S. they earn a fee on every transaction, a small, tiny fee, but they earn that fee. So when you do a trade between India and, I don't know, Indonesia in dollars, the U.S. banks earn a fee. The Indian banks will be like, listen, if you're allowing INR to be used, why aren't we as Indian banks earning a fee? Because now you're going to do everything at the RBI level, which is quite interesting because it makes it much cheaper for an international trade transaction to happen with much lower fees. It's not, it's just insignificant.

Shray Chandra: Not that they were enormous to begin with, but the point was taken.

Deepak Shenoy: There is a smaller fee that's involved and without any visibility. So the Indian, imagine JP Morgan bank today gets the visibility of all transactions that flow through the banks that are registered with it for the, where it is a correspondent bank in the SWIFT network. So it has visibility to all those customers. So tomorrow if it were to lend directly to any customer, it would already know which other banks it has lent through and how much trade transactions happen to it and all that stuff. The flow of that data is not visible to any Indian bank. If the RBI were to be the one that, you know, kind of does all of this activity, but I think again, that's a temporary concern. We have to build interest in Indian banks and therefore do in the sense, we have to build confidence in Indian banks. So having the RBI do it initially is not a big concern at all.

Shray Chandra: My penultimate question. I do get the situational blanks, how does this feed into monetary policy? Does it make? I mean, RBI dictates that. So does this make the RBI's life easier, tougher now that banks perhaps have a slightly lower share of deposits? I mean, does the RBI better at the monetary policy? How does this pan out?

Deepak Shenoy: Yeah, the monetary policy is interesting because it controls the, so RBI cannot today control real monetary policy. In the sense it thinks it can, which is a good thing because if you tell the RBI, it can't control monetary policy, they will throw a hissy fit. But for all the money that the RBI prints, what goes into the real economy is largely only the amount of money that the banks are willing to lend individuals. Bank, when it lends individuals, it will only lend as much as its own personal balance sheet can provide. So in the sense, the strength in terms of credit, you know, efficiency and whether you are providing collateral against the loan and so on. The bank's own capital, to give you an example, the RBI has printed some, you know, multiple lakhs of crores in the last four years. The money supply hasn't grown by that same number of lakhs from the banking system. If you look at the total amount of money lent by banks to you and me together, that hasn't grown in any meaningful form even by deposit. Deposit growth is seven and a half eight percent, whereas RBI's money supply growth is twenty percent. Now you're thinking, twenty percent at the RBI level translates to only eight percent of the bank level. Because banks are not constrained by how much the RBI prints. Banks are constrained by their own capital, which means that RBI is printing more money is not going to make banks lend more to you. At the same time, because banks, when they lend, they create deposits and so on. RBI's Central Bank

Deepak Shenoy: You know, Digital Currency can affect monetary policy in the sense the same way cash does. If more cash is printed by the RBI in order to meet demand that increases the amount of cash that's in the system in total. RBI is unlikely to just print Central Bank Digital Currency per say, but this would be money that is not available for the banks to lend. Think of it as, its money inside the RBI, so the banks don't have access to that money, they cannot multiply it. So the more money that lies in CBDC, the less that is available in banks to lend in terms of, from a money multiplier effect. This is fine because banks again are not constrained by what RBI has printed. So the impact on monetary policy is going to just be the way the RBI looks at it rather than them considering that we print money and give it to banks. They could, the government could use it as a way to do fiscal policy where they transfer money through the CBDC network to individual people. Those people spend that money, and when they spend that money, that money gets transferred to banks instead, where the banks can then use that money to lend. It's a very complex interplay of where monetary policy kind of meets it at some point

Deepak Shenoy: It may be that the central bank may say, well, we need restrictions on Central Bank Digital Currency because everybody's coming here and then there's no money in the banking [00:55:00] system to lend.

Shray Chandra: Which is not good at all.

Deepak Shenoy: Which is not at all good because I'll give you an example what if a banking system and a bank lends you 100 rupees? You deposit that hundred rupees in the bank, that hundred rupees you can spend anywhere, but it'll go to another bank, right? Currently. But what if they told you that there was a CBDC, there would be a liability of hundred rupees to you, but you've spent, you've given it as a CBDC to someone else. So now that money is off of the banking system sitting with RBI. So there is a mismatch here in terms of what is happening and what is not? So, you could result in, you know, monetary policy impacting credit and growth and all sorts of things because if you have transferred that 100 rupees to somebody else, that other bank could use that 100 rupees to lend to someone else and to someone else and so on. But if you take this out and put it into RBI, it's leakage from the banking system. That leakage can impact monetary policy both in a good way and in a bad way.

Shray Chandra: But probably not, not something that people would like to happen in that sense.

Deepak Shenoy: I think it has constraints, so you'll end up with hitting a wall at some point. Somebody will have to, you know, visually kind of do this and say, if so many people move their money to CBDC, then we have a systemic problem here. Banks will have to start borrowing money from the RBI overnight just to meet their capital requirements, which results in the system hitting a deficit and then other things will happen. This is something we are used to in the past. We have seen a lot of cash usage in the past. CBDC may enhance that usage. So we'll just have to figure out how, how to make these things happen. However, the difference is this, RBI will not pay any interest. And of course, some people are talking about negative interest where if you put a 100 hundred rupees the RBI after a year, you'll get only 99 back.

Shray Chandra: Now like the European banks, apparently.

Deepak Shenoy: European banks, who want to implement something like this in their CBDCs. India will never do that. But India bank on the fact that listen, you'll not keep your money in a zero percent earning account. Instead, you'll want some kind of interest in your accounts. So I might choose to put maybe 20 percent of my balances there, but remaining ones I want to invest. Because I want that money in the market rather than anything else. So I expect that the goods, good part of the CBDC will outweigh the bad. But there will be crisis situations when people will move to the CBDC in times of a crisis. RBI may then put a limit saying, listen, in these crisis times, you're not allowed to have more than X amount of money in the CBDC. Please convert to your bank account if you have that.

Shray Chandra: Or in the sense to make sure that they don't rock the boat and have any unintended consequences. The CBDC can always remain a fairly small portion per person, with limits to be used for specialized use cases and so on.

Deepak Shenoy: So the retail level can be small, for the banking system it can be large. So the banking system, when it uses CBDC, including foreign banks and all that, they can have unlimited amounts. The retail individual could have only, say, one lakh or two lakh rupees in it so that's the interesting part.

Shray Chandra: Understood. All right. I think our last question actually comes in from a couple of listeners. How do you think of small use cases like inheritance or pledging and billions and all that stuff? How would those fit into? Or is that all to be determined as it pans out?

Deepak Shenoy: Yeah, I think, you know, we've talked about how, you know, we may want to not be sequestered under bankruptcy or a fraud and so on, but similarly, we would have to have rules of what happens in case a person dies. Now, today, in case a person dies with cash, whoever finds that cash keeps the cash. There is no way to kind of, you know, so, but in digital, there's no finding, it's there. It's probably on this phone. How do you transition that person's CBDC into somebody else? So you need a wait for inheritance to work so you know you can transition the money across? You can, you need a way to be able to pledge a CBDC to be able to take a loan against it. So I have money in CBDC but I want to take a loan against that money. So I pledge it to a bank and the bank says, well, you know what? This is like gold because it's you know, I mean you can use it to pledge against property. You can, sorry, against a loan so you can take a loan against it. All of these things are interesting use cases. It may be quite interesting because it's digital to be able to do it dynamically and immediately. So, for instance, if you want a loan from me for only 15 days and you know, you have a bunch of CBDC and for whatever reason it is, you don't want to use that. Instead, you want to use the loan to be able to, you know, the CBDC to be able to factor in the loan. And this could be, there are so many use cases for this as a bank guarantee for instance. The bank provides a guarantee against your CBDC, so you can't use your CBDC in that timeframe.

Deepak Shenoy: This is actually where your, you know where [01:00:00] the concept kind of comes in handy in order to be able to do this, but you have to have a, you know, a digital way to pledge it digitally, to unpledge it. A way to even, you know, I mean, I don't know if it's even possible, but if it was just like a bank account, it would have a UPI access. You could use it to regularly pay people. I would be quite happy, for instance, to pay because our banks treat our, the lowest strata of the economy so badly because they don't make too much money. They have like 5000 or 2000 or 3000 rupees in their account at any given time. They treat them badly, especially in urban conditions and in rural it's slightly better but still. The issue now is that these people distrust the banking system because they say, listen, whenever I'm in trouble, I go to a bank, they make me wait for 14 hours and 12 hours and two days and all that stuff. To change this, if you had an RBI sitting behind it saying, listen, we're not going to ask any questions, you earn the money, it's going to come out like clockwork. This, in my view, is going to be a dramatic change because banks are going to have to up their service standards even to the lowest strata of society. And I would be happy to pay people who are you know, help at my house or people who are economically not the highest strata of society in a way that I could pay their digital currency accounts, Central Bank Digital Currency accounts, rather than a bank account.

Shray Chandra: That makes sense Deepak. So I guess at some level, we'll all just admit that we don't know what the CBDC is going to look like, who's going to build it, what the limits are going to be and so on. But from everything you've said, it actually sounds fascinating. This isn't just a digitization of vouchers. At some level, this will also just add competition, some alternatives, maybe a bit of efficiency, perhaps an international angle. So there does seem to be a lot to be gained from it. At the very least, it'll at least make our economy even more interesting. And so let's all just stay on top of this. So thank you so much, Deepak.

Deepak Shenoy: Thanks, Shray. It was great fun. Thanks for listening.

Shray Chandra: Well, that's it for our episode. Thanks, everyone for listening. If you've actually made it this far, please take note of the Discount Code CMPODCAST for a 15% discount on a Capitalmind premium membership. You can see more of our episodes at capitalmind.in/podcast, and while you're on our site, you can learn more about our Do It Yourself and fully managed Portfolio Management Service at capitalmind.in. Deepak has a book out called Money Wise. It's available on Amazon, Flipkart or at shop.capitalmind.in if you want a signed copy. If you have any feedback, suggestions or topics for our next episode, please send over an email to podcast@capitalmind.in. Thanks, everyone. Bye bye.