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RBI Might Pilot Central Bank Digital Currency In Q1 2022

RBI Might Pilot Central Bank Digital Currency In Q1 2022

The chief general manager for RBI’s department of payment and settlement made the announcement at a banking conference

Central Bank Digital Currencies (CBDC) are virtual forms of a country’s fiat currency, in this case, the rupee.

According to a BIS survey, 86% of global banks are exploring options to issue CBDCs

The Reserve Bank of India might pilot its CBDC in the first quarter of the 2022 financial year, according to P Vasudevan, chief general manager of RBI’s department of payment and settlement. He made this announcement while speaking at State Bank of India’s (SBI) Banking and Economic Conclave.

“We are on the job and looking into the various issues and nuances related to CBDC. It’s not a simple thing to just say that CBDC can be a habit from tomorrow on,” said P Vasudevan at the banking event, according to BusinessLine. The RBI is yet to share a few crucial details.

“The central bank is also checking if intermediaries can be bypassed altogether, and most importantly, checking if the technology should be decentralized or should be semi-centralised,” said Vasudevan, according to another report. 

A CBDC is a virtual form of a country’s fiat currency issued in the form of an electronic record or digital record. For India, this would be a digital version of the rupee, the country’s domestic currency. Just like the fiat currencies, they will be issued by the country’s central bank (the RBI in this case) and will be backed by the ‘full faith and credit’ of the issuing government. 

Full faith and credit is a phrase used to describe an entity’s unconditional guarantee and commitment to back the value of a currency.

According to a Bank for International Settlements (BIS) survey, the vast majority of central banks surveyed (86%) are exploring the benefits and drawbacks of CBDCs. In recent months, major central banks have published many in-depth policy issue assessments and have tested a variety of designs.

Even though the interest and work on CBDCs is a global phenomenon, the motivations for potential issuance are shaped by the local circumstances of the banks in question. Financial inclusion remains a key motivator across emerging and developing markets and a top priority for CBDC development.

CBDCs are likely to see prevalent use in the insurance and lending space, and using them will bring in transparency and traceability across financial sectors according to experts. 

When it comes to cryptocurrencies, most central banks including the RBI seem to view them as niche products with no widespread use as a means of payment. But many seem to be keeping a close watch on stablecoins—cryptocurrencies that maintain a stable value relative to a fiat currency like Tether (USDT).