According to reports published on Monday (August 22), the Central Bank Digital Currency (CBDC), the Reserve Bank of India’s (RBI) digital rupee, may be implemented gradually, starting with wholesale enterprises during the current fiscal year.
Finance Minister Nirmala Sitharaman stated that the central bank would introduce the CBDC in the fiscal year 2022–2023 in her statement on the budget on February 1. In October of last year, the RBI made a proposal to the government to expand the use of the paper rupee to include money in a digital format. The RBI has frequently expressed its aversion to private digital currencies.
The RBI states that “CBDC is the legal tender issued in digital form by a central bank. It is interchangeable one-to-one with fiat currency and is the same as fiat currency. Its only distinction is in form. Wallets supported by blockchain can be used to transact using the digital fiat currency, or CBDC.
Despite being directly inspired by Bitcoin, the idea of CBDCs is distinct from decentralised virtual currencies and crypto assets, which are not issued by the government and lack the status of “legal cash.” CBDCs give users the ability to carry out domestic and international transactions without the use of a third party or bank.
“Introduction of CBDC has the potential to deliver major benefits, such as reduced dependence on cash, higher seigniorage due to lower transaction costs, and reduced settlement risk,” said Pankaj Chaudhary, a minister of state for finance, in a statement to the Lok Sabha last year. The use of CBDC might also result in a more reliable, effective, regulated, and legal tender-based payment method.
However, he had noted, “There are also related hazards that need to be carefully weighed against the potential advantages.”
Chaudhary declared that the Reserve Bank of India (RBI) had suggested changes to the Reserve Bank of India Act, 1934, allowing it to establish a CBDC. At the time, the government intended to propose a Bill into Parliament that would, with “limited exclusions,” forbid “any private cryptocurrencies in India.”
“In October 2021, the Reserve Bank of India submitted a proposal to the government for a change to the Reserve Bank of India Act, 1934, to broaden the definition of “bank note” to encompass money in digital form. In order to introduce CBDC with minimal to no interruption, RBI has been looking at use cases and developing a phased implementation approach, Chaudhary told the Lok Sabha.
RBI has regularly raised concerns about the use of private cryptocurrencies like Bitcoin, Ether, etc. for money laundering, terrorism financing, tax evasion, etc. Its own CBDC launch has been viewed as a method to balance the benefits and dangers of digital money.
Technology experts and evangelists have put forth a number of models for how the digital rupee may be used in transactions; the specifics will probably be revealed in the RBI’s official announcement. A key distinction between digital rupee transactions and current digital payment methods could be that they would occur instantly.
