The Reserve Bank of India (RBI) on Friday released a Concept Note on Central Bank Digital Currency (CBDC), to create awareness about CBDCs in general and the planned features of the digital rupee in particular. The central bank said it will soon commence limited pilot launches of e-rupee for specific use cases.
“The e-rupee will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper. It also has all the transactional benefits of other forms of digital money,” the central bank said in the note.
The RBI said it “broadly defines CBDC as the legal tender issued by a central bank in a digital form. It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and shall be accepted as a medium of payment, legal tender, and a safe store of value. CBDCs would appear as a liability on a central bank’s balance sheet”.
The central bank said the Bank for International Settlement has laid down “foundational principles” and “core features” of a CBDC, to guide exploration and support public policy objectives, as per the need of existing mandate of central banks.
Finance Minister Nirmala Sitharaman in the Union Budget for 2022-23 said the RBI will roll out a digital equivalent to the rupee in the current financial year.
“CBDC, being a sovereign currency, holds unique advantages of central bank money viz. trust, safety, liquidity, settlement finality and integrity. The key motivations for exploring the issuance of CBDC in India among others include reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in payments system, adding efficiency to the settlement system, boosting innovation in cross-border payments space and providing public with uses that any private virtual currencies can provide, without the associated risks,” the RBI said.
It added that the use of the offline feature in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not available.
The Concept Note seeks to explain the Reserve Bank’s approach towards the introduction of the digital Rupee. The RBI’s approach is governed by two basic considerations – to create a digital rupee that is as close as possible to a paper currency and to manage the process of introducing digital rupee in a seamless manner.
The note also discusses key considerations such as technology and design choices, possible uses of digital rupee, issuance mechanisms etc. It examines the implications of introduction of CBDC on the banking system, monetary policy, financial stability, and analyses privacy issues.
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