The Reserve Bank of India (RBI) is pursuing a “phased implementation strategy” of its central bank digital currency (CBDC), revealed its deputy governor T Rabi Sankar in a speech yesterday.
“Every idea has to wait for its time. Perhaps the time for CBDC is nigh,” he said.
Like many developing countries, India is faced with the problem of financial inclusion. It has just 582 million bank accounts compared to 1.21 billion mobile connections, so a digital currency would make cash more accessible and encourage spending.
It’s hoped that a digital rupee might reduce the risks of virtual currencies to the economy. Sankar referred to the “frightening level of volatility” in the prices of cryptocurrencies.
This would strongly motivate the RBI to roll out a central bank-issued form of cash, giving the population a more stable way to store their money.
In his speech, Sankar gave more details on what a digital rupee might look like. The digital rupee, like most CBDCs will likely coexist with cash and digital forms of payments.
The RBI is looking to launch the CBDC in both wholesale and retail segments.
“It would be RBI’s endeavour, as we move forward in the direction of India’s CBDC, to take the necessary steps which would reiterate the leadership position of India in payment systems,” stated Sankar.
This is not the first time that India has expressed an interest in a digital rupee. Reports published in January and March both included observations on the benefits of a CBDC.
“CBDC will be in the arsenal of most if not all central banks in the world. Setting this up will require careful calibration and a nuanced approach in implementation,” Sankar added.
In late 2019, India published a draft blockchain strategy that floated the idea of a public permissioned blockchain for the digital rupee. But no additional technical details have been shared since.
Developing a CBDC takes time, and each country has its specific requirements that need bespoke technical features to be trialed. China, which hopes to pilot its digital yuan at the Beijing 2022 Winter Olympics, has been working on its currency since 2014.
RBI will have to spend time ensuring that a proper legal framework is in place, as this will require amendments to several sections of the RBI Act, as well as the Coinage Act of 2011.
Meanwhile, on Wednesday, the Spanish payment infrastructure Iberpay shared details on its CBDC trials. The Bank of Canada has also released an early-stage report detailing the motivations for a potential CBDC.
