The Reserve Bank of India (RBI) will introduce its own version of Central Bank Digital Currency (CBDC) in a phased manner and after carefully weighing its impact on various issues, including how it could hamper the deposit mobilisation abilities of banks, and its potential effect on the conduct of the monetary policy, deputy governor T Rabi Sankar said in a speech on Thursday.
“However, conducting pilots in wholesale and retail segments may be a possibility in near future,” the RBI deputy governor said.
The RBI is currently working towards a phased implementation strategy and examining use cases "which could be implemented with little or no disruption,” Rabi Sankar said in an online discussion on the issue, organised by Vidhi Centre for Legal Policy.
After giving a cold shoulder to cryptocurrencies for years, India’s central bank is finally set to launch its own digital currency, and investors in the country have a reason to cheer.
On July 22, Reserve Bank of India (RBI) deputy governor T Rabi Sankar said the regulatory body is considering introducing a central bank digital currency (CBDC) in a phased manner. A CBDC is a legal tender issued by a central bank in a digital form. In effect, it is just a digital version of the fiat currency, which in India’s case is the rupee.
This means a CBDC is not the same as private virtual currencies such as bitcoin, ether, or dogecoin.
“CBDCs are desirable not just for the benefits they create in payments systems, but also might be necessary to protect the general public in an environment of volatile private virtual currencies,” Sankar said in his keynote address(pdf) during a webinar organised by the Vidhi Centre for Legal Policy, New Delhi. “Introduction of CBDC would possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option… CBDC is likely to be in the arsenal of every central bank going forward.”
In the past, the RBI and the Indian government have had a tough stance on cryptocurrencies. In fact, not too long ago, banks in the country were temporarily barred from dealing in digital coins.
What is a Central Bank Digital Currency?
A CBDC is essentially a legal tender issued by the central bank, as the name suggests. It has the same functional capabilities as a fiat currency and is considered exchangeable in nature with said fiat currency in a one-to-one form. The only notable difference is the form it takes, i.e., a digital form. While it is a digital currency, it is important to differentiate it from existing private digital currencies such as Bitcoin and Ethereum. Private crypto assets such as those have no legal issuers and they cannot be considered as money or currency, whereas the CBDC can be.
RBI’s Stance on the CBDC
Sankar had mentioned that the RBI is currently looking at ways to launch the digital asset for general purposes on a mass population scale. In doing so legal frameworks would also need to be taken into consideration. Amendments would need to be made to several existing legal outlines and sections such as sections 24, 25 and 26 of the RBI Act as well as to the Coinage Act of 2011. Additionally, changes would be required to the Foreign Exchange Management Act and the Information and Technology Act as well.
“RBI has been exploring the pros and cons of introduction of CBDCs since quite some time," said Sankar. He went on to add, “Generally, countries have implemented specific-purpose CBDCs in the wholesale and retail segments. Going forward, after studying the impact of these models, launch of general purpose CBDCs shall be evaluated. RBI is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption to India’s banking or monetary systems."
RBI’S view towards cryptocurrency
Sankar said in a statement that cryptocurrencies such as Bitcoin, do not necessarily fit into the RBI’s definition of ‘currency’. It is in fact this very reason that RBI along with central banks the world over is looking at CBDC as an alternative to the volatile crypto asset in the mainstream economy. The CBDC minimizes the risks as it is not subject to the volatility of the market’s fluctuations.