Union finance minister Nirmala Sitharaman on Tuesday announced that the Reserve Bank of India (RBI) would launch the much awaited central bank digital currency (CBDC) in 2022-23.
Ahead of its implementation, the Centre is proposing to amend the RBI Act, 1934 wherein this new form of currency will be regarded as banknotes.
The CBDC is the legal tender issued by the central bank in a digital form.
While the RBI has done a lot of work on this front over the past few months, the regulator is expected to throw more light on the road map for its implementation come February 9 when it announces the bi-monthly monetary policy.
“Introduction of the CBDC will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce digital rupee, using blockchain and other technologies, to be issued by the RBI starting 2022-23,’’ Sitharaman said while presenting budget proposals for 2022-23.
A blockchain is a digital ledger that records transactions that cannot be tracked.
According to the Atlantic Council, a think-tank, around 87 countries are exploring the CBDC compared with only 35 in May 2020.
The Bahamas was the first to launch the CBDC-Sand Dollar in October 2020. Nigeria brought its digital currency the e-Naira. Recently, the US Federal Reserve put out a discussion paper on the subject.
The RBI has so far indicated that though it is working on both a wholesale-based CBDC (that will be used by institutions like banks) and a digital rupee for the retail public, the latter being "complicated” may take more time. The central bank has also said that it will initially adopt a “basic model"
Banks have also reportedly expressed their apprehensions on the retail CBDC pointing out that the unit would reduce their relevance as an intermediary if the RBI decides to issue and distribute them.
RBI deputy governor T. Rabi Sankar had earlier said that while countries have implemented specific purpose CBDCs in the wholesale and retail segments, the RBI would study the impact of these models and only then launch general-purpose CBDCs.
He had disclosed that the central bank is working towards a phased implementation of the currency and is looking at use cases that could be implemented with little or no disruption.
He had pointed out that it is looking at issues such as the underlying technology and whether it should be directly issued by the RBI or through banks, among others.
The finance minister’s announcement comes even as other digital payment modes like UPI have seen a massive surge, particularly after the demonetisation. However, cash continues to occupy the predominant share of payment transactions in the country.
Experts had mixed reactions to the announcement. “The CBDC will help to enhance the digital economy by making currency management more efficient and less expensive’’, Kavitha Subramanian, co-founder, Upstox said.
“In 2022-23, the RBI will usher the rupee into its digital avatar, powered by blockchain. It will be interesting to understand what problem this Indian CBDC will solve. Our consumer payment system (including UPI) is already world-class and many transactions have moved away from cash to mobile payments. Our fintech ecosystem continues to innovate with new use cases to meet changing consumer needs. Our inter-bank payment systems have a national reach. It is not easy to see how a CBDC can increase financial inclusion – beyond current modes enabled with Jan Dhan, Aadhar and mobile payments’’, Mahesh Makhija, technology consulting leader, EY India said.
