RBI Backs Blockchain Innovation
RBI Governor Sanjay Malhotra Supports Blockchain Technology While Remaining Cautious on Cryptocurrencies
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Key Points
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Malhotra said the RBI is already using some of the technologies underlying crypto assets, both within the central bank and through public-private partnerships.
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He said sustainable financial innovation must preserve the foundations of trust, including sound institutions, settlement finality, the singleness of money and financial integrity.
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On rising bond yields and public debt, Malhotra said increased government and private-sector spending, including spending led by AI, was contributing to the hardening of yields.
India's central bank will not embrace cryptocurrencies but backs the technologies that power them. RBI Governor Sanjay Malhotra said the country remains cautious about crypto assets due to risks to monetary sovereignty, monetary policy, and capital controls. But he confirmed the RBI already uses distributed ledger technology and tokenization—the core innovations behind digital currencies—in its own operations and through partnerships.
Malhotra emphasized that India's domestic payments are already fast and cheap. The bigger challenge is cross-border transfers, where central bank digital currencies could help. He stressed that financial innovation must protect trust in the system, including sound institutions and the integrity of money itself.
Why India Rejects Cryptocurrencies Despite Innovation
RBI Governor Malhotra drew a sharp line between crypto assets and the technologies underlying them. India opposes cryptocurrencies because they threaten monetary sovereignty—the central bank's control over the money supply. They also risk disrupting monetary policy and weakening capital controls, which protect the economy from sudden outflows of foreign money.
Yet the RBI is not anti-technology. Malhotra confirmed the central bank actively uses distributed ledger technology and tokenization in its own systems and collaborates with private firms on digital innovations. The distinction is crucial: India wants the benefits of blockchain and digital assets without the instability crypto brings.
Domestic Payments Work; Cross-Border Transfers Don't
India's domestic payment system is already efficient and affordable, Malhotra said. ETVBharat reported that the real pain point is international transfers, which remain slow and costly for individuals and businesses. Central bank digital currencies—digital versions of the rupee controlled by the RBI—could solve this bottleneck without the risks of unregulated crypto.
A RBI-issued digital rupee would combine speed and safety. It would move money across borders faster than today's system while keeping the central bank in control. This approach lets India modernize without sacrificing the regulatory oversight that protects citizens and the financial system.
Financial Innovation Must Preserve Trust, Not Erode It
Malhotra laid out five pillars for responsible financial innovation: sound institutions, settlement finality, the singleness of money, financial integrity, and public trust. Cryptocurrencies fail this test because they fragment money into competing digital tokens and operate outside institutional safeguards. The Hindu noted that Malhotra sees crypto as a threat to these foundations.
Innovation matters, but not at the cost of stability. The RBI wants technology that strengthens the financial system—not technologies that undermine central bank authority or expose households to extreme volatility. This stance reflects India's belief that progress and protection are not opposites.
Rising Bond Yields Linked to Spending and AI Investment
Malhotra also addressed rising bond yields in India, which push up borrowing costs across the economy. Mid-Day reported that increased spending by both government and private sectors—including heavy investment in artificial intelligence—is driving yields higher. When demand for credit grows faster than supply, interest rates rise.
This pressure reflects strong economic activity but also poses risks. Higher yields make it more expensive for businesses to borrow and for the government to service debt. Malhotra's comments suggest the RBI is monitoring the trend closely, though no immediate policy shift was signaled.
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