The Reserve Bank of India launched the Central Bank Digital Currency (CBDC) pilot on December 1. The CBDC was proposed in the Union Budget on February 1 by the government of India.
CBDCs are digital currencies issued by a country’s Central Bank or Reserve Bank. It is the digital form of the fiat currency of a nation. These can be considered similar to cryptocurrencies but are centralized and regulated.
What is RBI’s CBDC?
The first pilot of the retail digital rupee (e₹-R) will be issued in the same denominations as the currently issued paper currency and coins. Person-to-Person and Payment to Merchant transactions can be made, and Payments to Merchants can be made through QR codes displayed at merchant locations.
How can it be used in India?
As per the first trial, the Reserve Bank of India has issued CBDC in New Delhi, Mumbai, Bhubaneswar, and Bengaluru. A total of eight banks are participating in the first pilot, including ICICI Bank, State Bank of India, IDFC First Bank, and Yes Bank. The CBDCs are distributed through these banks (intermediaries), and the digital rupee transactions will take place through a digital wallet stored on the users’ mobile phones. Participating banks offer these digital wallets.
Is CBDC useful for people?
Retail CBDC is helpful for the general public as they can use it in their day-to-day transactions. Also, CBDC is based on Distributed Ledger Technology (DLT), the same as the private blockchain network funded by the government, enabling tracking of anonymous transactions. Therefore it facilitates making secure and safe transactions and prevents any illegal activity. Government can monitor and trace any suspicious transactions and implement anti-money laundering and combating financial terrorism measures.
Whether CBDC will help in further digitization of payment activities in India, Sunil Rongala, Senior Vice President – Strategy, Innovation & Analytics Worldline India, says, “CBDCs, by their very nature, are digital versions of paper currency, and like paper currency, they will have unique serial numbers and denominations. The point is that the paper version of the rupee and the digital are the same. CDBCs will convert a percentage of the paper currency into a digital version, which will then be used for merchant transactions for goods and services and for peer-to-peer transfers. This is advantageous to the country from both an efficiency and cost perspective. Because of instant settlement and high trust, this can be very useful, particularly in the hinterland areas.”
CBDCs will undoubtedly bring many efficiencies to the Indian payment system. India will join Sweden, China, the European Union, The Bahamas, etc., as a CBDC nation. Besides, the government should adopt safeguards to avoid threats of cyber attacks.
