Roving Periscope: RBI to launch Digital Rupee on a pilot basis soon
Virendra Pandit
New Delhi: As an additional option to the currently available forms of money, the Reserve Bank of India (RBI) will soon begin a pilot project for the launch of Central Bank Digital Currency (CBDC), known as Digital Rupee (e₹), for specific uses.
In her Budget Speech on February 1 this year, Finance Minister Nirmala Sitharaman said the central bank would launch the CBDC in the current financial year (2022-23).
The CBDC) will be the RBI-issued legal tender, the same as a sovereign currency, exchangeable one-to-one at par with the fiat currency.
The move towards the CBDC’s issuance came in the wake of the rapidly mushrooming of privately floated cryptocurrencies, which bypass the established and regulated intermediation and control arrangements.
The Indian central bank informed two basic considerations will govern the CBDC–to create a Digital Rupee that is as close as possible to a paper currency, and to manage the process of its introduction in a seamless manner.
The proposed Digital Rupee will have separate versions for specific uses.
The CBDC-for-Retail (CBDC-R) would be potentially available for use by all — private sector, non-financial consumers, and businesses—while the CBDC-Wholesale (CBDC-W) would be designed for restricted access to select financial institutions.
While CBDC-W is intended for the settlement of interbank transfers and related wholesale transactions, CBDC-R is an electronic version of cash primarily meant for retail transactions.
The RBI said a token-based CBDC (a bearer instrument like banknotes, meaning whosoever holds the tokens at a point in time would be presumed to own them) is viewed as a preferred mode for CBDC-R as it would be closer to physical cash.
The account-based CBDC (which requires maintenance of the record of balances and transactions of all holders of the CBDC and shows the ownership of the monetary balances) would be considered for CBDC-W.
The way physical cash carries no interest, the CBDC-R would also be interest-free.
The RBI said the key motivations for launching the CBDC included a reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in the payments system, adding efficiency to the settlement system, and boosting innovation in the cross-border payments space.
The CBDC would extend to the people all facilities that any private virtual currencies could provide, without the associated risks.
Using the offline feature in CBDC would also be beneficial in remote locations and offer availability and resilience benefits where electrical power or a mobile network is not available.
The private virtual currencies negate the historical concept of money. They are not commodities or claims about commodities, as they have no intrinsic value.
“The rapid mushrooming of private cryptocurrencies in the last few years tried to challenge the fundamental notion of money. They geared the inherent design of cryptocurrencies to bypass the established and regulated intermediation and control arrangements that play a crucial role of ensuring integrity and stability of monetary and financial eco-system,” an official said.
