India’s central bank shares plans for CBDC digital rupee
The Reserve Bank of India (RBI) has outlined the proposed functions and rationale for its emerging central bank digital currency (CBDC) in a 51-page document published on October 7.
The country’s central bank seeks to raise awareness of CBDCs, which are being developed by a number of central banks around the world, and clearly define the objectives and options, as well as the potential positive and negative elements of digital rupee implementation in India.
The paper summarises the key motivations for issuing India’s CBDC, highlighting trust, security, liquidity, and settlement finality and integrity as key components of a sovereign digital currency.
The main motivation for issuing CBDCs in India is to reduce the transaction costs associated with managing physical cash in the country. RBI also advertises improved access to financial services in addition to an increasingly sustainable, efficient and innovative payment system.
The improvement in cross-border payments and settlement is also highlighted by the prospect of a standalone CBDC function, which would be useful in remote locations and areas without stable power supply or mobile network access.
RBI has long kept public blockchains and cryptocurrencies at arm’s length and the paper lays out its unwavering view that cryptocurrencies pose a significant risk to Indian consumers due to market volatility.
“These digital assets undermine India’s financial and macroeconomic stability because of their negative impact on the financial sector.”
RBI also highlighted its concern that the continued proliferation of cryptocurrencies will reduce its ability to regulate monetary policy and the monetary system, which the central bank considers a threat to financial stability in India.
CBDC’s digital rupee is promoted as having the same benefits as publicly available cryptocurrencies, while “providing consumer protection”, avoiding what it described as “disruptive social and economic consequences”.
The Indian central bank also touched on the possibility of direct and indirect issuance and management. Direct issuance would result in the RBI being responsible for managing the entire system, while the indirect model would involve the use of intermediaries such as banks and other payment service providers.
The ongoing development of the digital rupee is likely to require further stakeholder engagement and iterative design to create a CBDC suitable for a wide range of use cases. The Central Bank of India has also emphasised its intention for CBDC to complement existing forms of money and provide users with additional digital payment options.