The proposed Central Bank Digital Currency (CBDC) to be issued by the Reserve Bank will play a critical role in improving the speed of transactions and reducing the cost of cash, a Deloitte report said on Wednesday.
The Reserve Bank of India is planning to come out with a central bank-backed digital currency, using blockchain technology in 2022-23.
As a financial services innovation, CBDCs are likely to play a pivotal role in shaping the ‘future of value transfer’, the report said, adding that most central banks worldwide are now in various stages of their evaluation of launching their national digital currencies.
“CBDCs due to its inherent potential of changing the way value transfer happens, provide a more resilient, innovative, and competitive payment system for households, businesses, and economies,” said Monish Shah, partner, Deloitte India.
Currently, most security clearing and settlement processes have a multi-day lag, he said, adding “with the introduction of Digital Rupee there would be a significant increase in efficiencies and reduction in associated reconciliation costs”.
The report said CBDCs are likely to drive efficiencies and effectiveness of a jurisdiction’s payments system by ensuring that its users access safe digital money.
CBDCs will provide users with a sovereign option as compared to other less safe digital instruments, which may lead to less reliable payments, relatively volatile store of value and potentially erode monetary and financial stability.
“It may be especially important in the future as the use of cash declines and new forms of ‘value transfer alternatives’ become more widely used in the payment cycle,” it said.
Globally, efforts taken towards the development of CBDCs by central banks are very dynamic, and with the Covid pandemic, it is likely that the momentum behind these efforts will increase even further.