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Generate QuizCurrently, the Reserve Bank of India (RBI) has decided that the retail Central Bank Digital Currency (e-Rupee) will NOT bear any interest. What is the primary macroeconomic rationale behind this decision?
- To encourage citizens to invest heavily in private cryptocurrencies instead
- To prevent the CBDC from becoming a substitute for bank deposits, which could trigger bank runs and disintermediate commercial banks
- Because the technological infrastructure cannot support complex interest calculations on digital tokens
- To comply with IMF regulations that forbid central banks from paying interest on fiat currency
Answer: To prevent the CBDC from becoming a substitute for bank deposits, which could trigger bank runs and disintermediate commercial banks
If the risk-free e-Rupee paid interest, citizens might withdraw their savings from commercial banks and hold them directly with the RBI. This 'disintermediation' would drain banks of their deposit base, severely restricting their ability to lend and potentially causing financial instability. Keeping the CBDC non-interest-bearing ensures it functions purely as digital cash for transactions, not as a savings instrument.