India Prepares For CBDC Launch, Pilot To Begin By The End Of 2022

India’s central bank digital currency (CBDC) is getting ready for rollout, and soon a pilot project will be launched for it, sources told Inc42. The pilot could begin in a couple of months or latest by 2022-end, depending upon certain approvals.

“The CBDC is being developed for both retail and wholesale simultaneously,” sources said. However, the Reserve Bank of India (RBI) may roll out the digital currency for wholesale businesses first.

The mode of pilot however is still unclear. No internal advisory/ instruction has been issued so far. “There is no clarity over whether the pilots will be run publicly or in confidence,” the sources added.

Just like the rupee currency notes, a paper contract in which the RBI governor promises to pay the bearer the mentioned amount, a CBDC is a legal tender issued by a central bank in a digital form. A CBDC is thus the sovereign equivalent of existing cryptocurrencies or crypto assets like Bitcoin and Ethereum. However, unlike Bitcoin and Ethereum, which are mined and generated accordingly and are fully decentralised, a CBDC is issued and controlled by a country’s central bank.

India had been mulling the launch of a CBDC since 2017. However, the project development in this regard started only in 2021, an RBI officer earlier told Inc42.

In her Budget speech, Finance Minister Nirmala Sitharaman said that the central bank would launch the CBDC in the financial year 2022-23. In October last year, the RBI, which has repeatedly voiced its opposition to private digital currencies, proposed to the government the introduction of digital currency.

Global Scenario and Use Cases

India’s northern neighbour China has already entered the second phase of its CBDC project. While 5 Mn merchants in China have installed e-CNY or digital yuan payments services, the country is now exploring e-CNY smart contracts applications.

The state-owned Bank of China recently launched a new program that aims to bridge primary school education with smart contracts. Students can now enrol in extracurricular activities using e-CNY as smart contracts.

China also issued the first ever e-CNY loan using intellectual property as collateral and is now moving closer to launch cross-border CBDC payments.

Out of 112 countries that think tank The Atlantic Council has been tracking for CBDC developments, 11 countries, including Nigeria, Jamaica, The Bahamas and eight East Carribean nations, have launched countrywide CBDCs, while 14 others, including China, Saudi Arabia, South Africa, Russia and South Korea, have launched their CBDCs in pilot mode.

Speaking about the use cases of CBDC in India, RBI Deputy Governor T Ravi Shankar earlier said that there is a unique scenario of the increasing proliferation of digital payments in the country coupled with a sustained interest in cash usage, especially for small value transactions.

To the extent the preference for cash represents a discomfort for digital modes of payment, CBDC is unlikely to replace such cash usage. However, he added that the preference of cash payments for anonymity can be redirected to acceptance of CBDC.

“India’s high currency to GDP ratio holds out another benefit of CBDCs. To the extent large cash usage can be replaced by CBDCs, the cost of printing, transporting, storing and distributing currency can be reduced,” Shankar said.