Reports on Monday (August 22) said the Reserve Bank of India’s (RBI) digital rupee — the Central Bank Digital Currency (CBDC) — may be introduced in phases beginning with wholesale businesses in the current financial year.
In her Budget speech on February 1, Finance Minister Nirmala Sitharaman had said that the central bank would launch the CBDC in the financial year 2022-23. RBI, which has repeatedly voiced its opposition to private digital currencies, had proposed to the government in October last year to widen the scope of the paper rupee to include currency in a digital form.
What is Central Bank Digital Currency (CBDC)?
According to the RBI, “CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.” The digital fiat currency or CBDC can be transacted using wallets backed by blockchain.
Though the concept of CBDCs was directly inspired by Bitcoin, it is different from decentralised virtual currencies and crypto assets, which are not issued by the state and lack the ‘legal tender’ status. CBDCs enable the user to conduct both domestic and cross-border transactions which do not require a third party or a bank.
How will CBDC help?
Minister of State for Finance Pankaj Chaudhary had told Lok Sabha last year: “Introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs, reduced settlement risk. Introduction of CBDC would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option.”
He had added, however, that “There are also associated risks which need to be carefully evaluated against the potential benefits.”
