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Source: The post is based on an article “Disintermediation: An overblown bank scare” published in Live Mint on 13th October 2022.
Syllabus: GS 3 – Economic Development
News: The Reserve Bank of India (RBI) has recently outlined a plan for the proposal of e-rupee which is a digital currency.
The proposal sets aside intermediaries like banks from the involvement in e-rupee. However, the Nobel Prize winner in economics this year, highlights the vital role of financial intermediation played by banks in an economy.
What will be the advantages of e-rupee?
First, an e-rupee can easily attract savings as it will bear an RBI promise.
Second, money held in cash-like e-token form would be a very safe asset when compared to an account at a bank that requires transfers via UPI which looks ‘digital’ but is not risk-free. Further, offering interest on e-rupee can increase the deposits.
Third, lenders could borrow funds from RBI to on-lend and to sharpen their skills of pricing credit risk.
Therefore, retail deposits play an important role in credit expansion.
