Indian Central Bank Publishes Concept Note on its CBDC, Digital Rupee
The Reserve Bank of India (RBI), India's central bank, has published a 50-page concept note for the introduction of a central bank digital currency (CBDC) in the country.
The document has been prepared by the RBI's Fintech department, which was created in January 2022 with the responsibility of forming cryptocurrency regulations and creating a central bank digital currency (CBDC).
The RBI's note stressed the importance of identifying "innovative methods and compelling use cases that will make CBDC as attractive as cash if not more." It said it has been working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch, calling the current zeitgeist a "watershed moment in the evolution of currency that will decisively change the very nature of money and its functions."
The RBI's motivations in creating a CBDC range from reducing operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in the payments system, to boosting innovation in cross-border payments space, to providing the public with uses that any private virtual currencies can provide, without the associated risks, to offer availability and resilience benefits when electrical power or mobile network is not available in remote locations.
While re-emphasising the dangers of cryptocurrencies as a threat to the stability of the financial system, the RBI has touted its CBDC as a "risk free central bank digital money which will provide the users the same experience of dealing in currency in digital form, without any risks associated with private cryptocurrencies."
The RBI has also indicated merit in introducing both Wholesale and Retail CBDCs, going by the "potential offered by each of them."
RBI's previous report titled “Trend and Progress of Banking in India 2020-21″ released in December 2021, raised questions about several aspects of CBDCs including “whether the CBDC would be general purpose and available for retail use (CBDC-R), or would it be for wholesale use (CBDC-W)?”
Around that time, T Rabi Shankar, the RBI’s deputy governor, had stated that “two types of CBDC are in the works,” wholesale and retail, and that “a lot of work has been done” on the wholesale CBDC but that “the retail-based CBDC approval is more complicated and it will take some more time.” He also said that “the moment it is ready, whichever is ready first, we will release it for pilot testing.”
The concept note released on Friday appears to go a step further indicating more confidence in releasing both Wholesale and Retail CBDCs.
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