The Reserve Bank of India’s deputy governor said that reducing risks and increasing financial inclusion of central bank digital currencies would give the CBDC a sense of safe haven and could lead to a reduction in deposits in commercial banks.

Michael Patra believes that CBDCs, touted as a tool to improve financial inclusion and reduce settlement risks, could pose a risk to the entire banking system. The deputy governor of India’s central bank believes that CBDCs could be mistakenly perceived as the “only safe haven” at a time of financial market decline.

“This could trigger a banking crisis, fueled by panic among depositors and massive withdrawals of uninsured bank deposits,” explained Michael Patra.

In order to maintain the stable functioning of the financial system, public and commercial deposit insurers must take into account the growing importance of CBDCs in their work and must be prepared for a scenario in which a central bank digital currency is perceived as a safer hedging instrument than deposits.

Earlier, former Indian Finance Minister Pankaj Chaudhary, in response to a question from members of parliament about the government’s position on the crypto market, assured that in the foreseeable future, officials known to him do not plan to adjust the rules for regulating digital currencies in any way.