The Reserve Bank of India (RBI) announced recently that it will soon commence phased pilot launches of a central bank-backed digital rupee for specific use cases. The bank stated this in its released concept paper.
The concept note stated, “RBI has also been exploring the pros and cons of the introduction of CBDCs for some time and is currently engaged in working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch, and simultaneously examining use cases for the issuance of its own CBDC (Digital Rupee (e₹)), with minimal or no disruption to the financial system.”
In February, the Indian government stated that a digital rupee will be launched during the course of this financial year. Additionally, the discussion around a central bank-led digital currency has gained traction across a number of countries as cryptocurrencies became popular.
“It is the responsibility of the central bank to provide its citizens with 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 said.
The bank has also stated that it may take into account both wholesale and retail digital money, claiming that each has advantages.
According to the RBI, a digital currency in its wholesale form might increase the efficiency and security of settlement processes, while a retail e-rupee would provide citizens with a more secure method of making digital payments.
The RBI further noted, “The digital rupee seeks to replicate the features of cash and hence would not pay out interest, unlike bank deposits. It would also provide reasonable anonymity for small value transactions akin to anonymity associated with physical cash.”
The RBI is considering a “token-based” retail central bank digital currency (CBDC) since they are comparable to cash, and a wholesale CBDC that is “account-based.”
In addition, the e-rupee could be issued via banks as intermediaries. The central bank added that it remains open to different technology options.
The results of the pilot projects will be incorporated into the final design, according to the concept paper.
“A CBDC is aimed to complement, rather than replace, current forms of money and is envisaged to provide an additional payment avenue to users, not to replace the existing payment systems,” the bank said.