According to the RBI, the country should first adopt a basic model of central bank digital currency and base its architecture on the payment system architecture.
The Reserve Bank of India (RBI) has stated that the country must first adopt a basic model of central bank digital currency (CBDC) and use the payment system architecture as a backbone in order to create a cutting-edge system.
In its most basic form, a CBDC is a secure, reliable, and convenient alternative to cash.
It can also take on the complex form of a financial instrument depending on various design choices.
“Given its dynamic impact on macroeconomic policymaking, it is necessary to adopt basic models first, and test them thoroughly so that they have minimal impact on monetary policy and the banking system; India’s progress in payment systems will provide a useful backbone to make a state-of-the-art CBDC available to its citizens and financial institutions,” the RBI said in its report titled “Trend and Progress of Banking in India 2020-21.”
The CBDC can provide users with benefits in terms of liquidity, scalability, acceptance, ease of transactions with anonymity, and faster settlement when compared to existing forms of money, it said, adding that central banks around the world are debating how to implement CBDCs.
The RBI has been looking into use cases and developing a phased implementation strategy to ensure that CBDC is implemented smoothly.
Central banks all over the world are debating how to put CBDCs into practice, moving beyond their initial exploratory forays.
The RBI’s Central Board discussed CBDC and private cryptocurrencies earlier this month.
The government received a proposal from the Reserve Bank of India (RBI) in October 2021 to amend the Reserve Bank of India Act 1934 to broaden the definition of “bank note” to include digital currency.