The Reserve Bank of India on October 7 said that it will soon commence pilot launch of digital rupee for specific use cases. RBI also launched a ‘concept note’ on Central Bank Digital Currency (CBDC) for India to create awareness about CBDC in general and the features of this digital currency in particular. India’s CBDC will be known as ‘e₹’.
The concept note explains the objectives, choices, benefits and risks of issuing a CBDC in India. ‘e₹’ is going to be an additional option to the currently available payment systems in India. Being a digital currency, it is supposed to be easier, faster and cheaper.
The concept note discusses key considerations towards introductions of the digital currency by RBI. This includes creation of a digital currency similar to the paper currency in use today and also the management of the process of introducing CBDC in India. It will further examine the implication of introduction of digital currency on the financial system, banking system, monetary policy and analysis of privacy concerns.
CBDC will be a sovereign currency backed by the central bank which will have its own unique advantages viz, safety, liquidity and integrity. This will also help in reducing operational costs such as involved in physical cash management, financial inclusion, fostering resilience, efficiency an innovation in payment systems without the risks that other virtual currencies have.
CBDC can be structured in different forms which is ‘token-based’ or ‘account-based’. A ‘token-based’ CBDC is a bearer like instrument meaning whosoever person will hold the digital currency will be presumed to be the owner of the digital currency. However, ‘account-based’ CBDC would require maintenance of balances and transactions to determine the ownership of the digital currency.
In the past, the central bank has been quite has been vocal about its reservations against private virtual currencies or crypto currency such as bitcoin. RBI Governor Shaktikanta Das had earlier mentioned that cryptocurrencies are a ‘clear danger’ and argued that they do not have any underlying value which makes them a speculation with a sophisticated name.