India’s central bank, the Reserve Bank of India (RBI), says a
basic central bank digital currency (CBDC) model must be adopted
initially and tested comprehensively to minimize the impact on the
country’s monetary policy and banking system. The Indian apex bank sees
several benefits in launching a digital rupee, including “a potential to
enhance the efficiency of cross-border payments.”
RBI Outlines Benefits of Issuing Digital Currency and How to Launch a CBDC With Minimal Impact
The Reserve Bank of India (RBI) released its “Report on Trend and
Progress of Banking in India 2020-21” Tuesday. The 248-page report has a
section on central bank digital currency.
“In its basic form, a central bank digital currency (CBDC) provides a
safe, robust, and convenient alternative to physical cash,” the Indian
central bank described, adding that “Depending on various design
choices, it can also assume the complex form of a financial instrument.”
The RBI continued:
In comparison with existing forms of money, it can offer
benefits to users in terms of liquidity, scalability, acceptance, ease
of transactions with anonymity and faster settlement.
The Indian central bank noted that there are “crucial questions”
about the design of a central bank digital currency that must be
answered before introducing it. For example, one issue is “whether the
CBDC would be general purpose and available for retail use (CBDC-R), or
would it be for wholesale use (CBDC-W).”
The RBI stressed that “in a country like India, the decision about
distribution architecture, i.e., whether CBDC would be issued directly
by the central bank or through commercial banks, needs to be carefully
weighed.”
Noting that gauging the magnitude of issuance and distribution will
help identify “the appropriate underlying technology best suited to
handle such operations,” the apex bank detailed:
Given its dynamic impact on macroeconomic policy making,
it is necessary to adopt basic models initially, and test
comprehensively so that they have minimal impact on monetary policy and
the banking system.
In discussing the role of a central bank digital currency in
cross-border transactions, the RBI stated that “Introduction of the CBDC
has a potential to enhance the efficiency of cross-border payments and
may provide an alternative to correspondent banks, going forward.” The
report elaborates:
India’s progress in payment systems will provide a useful
backbone to make a state-of-the-art CBDC available to its citizens and
financial institutions.
Meanwhile, RBI Governor Shaktikanta Das has repeatedly said that the central bank has serious and major concerns
regarding cryptocurrency. At its recent meeting of the central board of
directors, the RBI called on the Indian government to impose a complete ban on cryptocurrency, stating that a partial ban will not work. Nonetheless, the government is reportedly planning to regulate crypto assets with the Securities and Exchange Board of India (SEBI) as the main regulator.
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