Indians might soon see its very own form of digital currency, as the Reserve Bank of India is looking forward to unveiling the central bank digital currency (CBDC) model before this year ends. RBI deputy governor T Rabi Shankar in a post Monetary Policy Committee press conference said that CBDC are “extremely” evolving technologies and difficult to put a date, but the central bank should be able to come up with a model by end of this year.
Ever since, the deputy governor last month spilled the beans on CBDC and how it is working towards a ‘phased implementation’ of strategy and examining use cases of CBDC, Indians have been excited, as they consider it an alternative to Indian alternative to popular cryptocurrencies which is backed by the government and is legal in the country.
So what is CBDC?
As per RBI, CBDC is a digital or virtual currency but cannot be compared to the private virtual currencies that have mushroomed over the last decade. CBDC is the same as currency issued by a central bank but takes a different form than paper (or polymer). It is sovereign currency (unlike cryptocurrencies) in an electronic form and it would appear as liability (currency in circulation) on a central bank’s balance sheet. The underlying technology, form and use of a CBDC can be moulded for specific requirements.
Shankar had earlier said that countries have implemented specific purpose CBDCs in the wholesale and retail segments. He added that going forward, after studying the impact of these models, launch of general purpose CBDCs shall be evaluated by the RBI.
RBI noted that though CBDCs are no different from banks conceptually, introducing them would require the central bank to make amendments to several sections such as 24,25,26 of the RBI Act , The Coinange Act, 2011, FEMA1 1999, Information Technology Act, 2000, among others.
“CBDCs are likely to be in the arsenal of every central bank going forward. Setting this up will require careful calibration and a nuanced approach in implementation. Drawing board considerations and stakeholder consultations are important. Technological challenges have their importance as well. As is said, every idea will have to wait for its time. Perhaps the time for CBDCs is nigh, “ he had said in a keynote.
While it may seem like the central bank is trying to match up with the growing popularity of cryptocurrencies by introducing a sovereign backed digital currency which is stable, the talks for CBDC dates back to 2017. The High Level Inter-Ministerial Committee (November 2017) constituted by the Ministry of Finance to examine the policy and legal framework for regulation of virtual / crypto currencies had recommended the introduction of CBDCs as a digital form of fiat money in India.