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Former Reserve Bank of India Governor Duvvuri Subbarao has said the central bank could lose control over money supply and inflation management if cryptocurrency is allowed in the country.

Speaking at a webinar organised by the National Stock Exchange (NSE) and New York University (NYU) Stern School of Business, Rao also said India's case for issuing a central bank digital currency (CBDC) may not be strong as there are capital controls.

"Crypto is backed by algorithms and there is fear that the central bank might lose control over money supply and inflation management. There are also concerns that crypto will disrupt the monetary policy, he said on Wednesday.

"Crypto can jump capital controls; fiat money is linked to the reserve currency, he added.

Rao, who served as the governor of RBI from 2008 to 2013, said CBDC also needs robust data protection laws.

According to him, cash is on its way out in India and digital payments are becoming popular.

However, Rao said owing to the pandemic, currency circulation has increased as people held on to cash due to lockdowns. "The central bank's role as last-resort lender should not be hampered.

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