Mumbai, Dec 8 (PTI) Ahead of moves to introduce the Central Bank Digital Currency (CBDC), former Reserve Bank Governor D Subbarao on Wednesday flagged the issue of data privacy and the need for a "credible" data security law to be in place before India goes ahead on its plans.

Subbarao, who was at the helm of RBI for five years, said the lack of such frameworks makes the introduction of CBDC not just a technological challenge but also a "tricky political issue", and hoped that the RBI, which is working on the introduction of such a currency, is engaged on it.

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It can be noted that the absence of strong data protection framework has come up as a concern in India in several other aspects in the past as well.

Speaking at a conference organised by NSE and New York University's Stern School of Business late in the evening, Subbarao said cash is anonymous, whereas the CBDC will not be so. CBDC will offer a complete trace and footprint of how the currency has flowed down.

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This will offer the government or the RBI access to all the data on how each unit of the currency has been used, he said, accepting that certain activities like drug trafficking and money laundering can be help curtailed with it but law-abiding people will have concerns.

"Why should the RBI or the government know how much ice cream I buy every month? or what luxury brands I patronise? So, there is certain level of discomfort and I think if you have CBDCs, you have to have very robust data protection laws which are credible not only to people within the country but also outside. So, data protection laws are very important in issuing CBDCs," he said.

"In a country like India where the opposition is very vigorous, there can be fake complaints, or there can be (a) government misusing the data and covering it up. So I can see a lot of political complication coming out of this," he added.

Subbarao, a career bureaucrat-turned-central banker, said a switch to CBDCs is being forced upon emerging market economies like India who want to be in-sync with the development globally and also derive benefits like lowering costs of remittances or even domestic payments.

A CBDC can be a good alternative for central banks as the private cryptocurrencies and stable coins (which are pegged to a reserve currency) find greater relevance among the people, he said, stressing that a monetary authority needs to have control over regulating interest rates, controlling inflation etc.

In the absence of any regulation on the stable coins, Subbarao advised caution on such instruments as well, and added that a country's capital account controls cannot help in an adverse event.

Subbarao said after the introduction of the CBDC, the RBI may work at giving an interest to the holder of the virtual currency, but went public with his concerns on the same saying any piece of currency should not accrue interest.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)