RBI Releases Concept Note On CBDC, To Soon Launch Pilot For Digital Rupee

The Reserve Bank of India (RBI) on Friday said that it will soon commence the pilot launch of digital rupee for specific use cases and also released the concept note for the Central Bank Digital Currency (CBDC). 

As the extent and scope of the pilot launch of the digital rupee expands, the RBI will continue to communicate about the specific features and benefits of digital rupee from time to time, the central bank said in a statement.

On the concept note, the RBI said that it aims to create awareness about digital currencies in general and the planned features of the digital rupee, in particular. 

Key Motivations For Exploring CBDC

CBDCs are sovereign currencies issued by central banks in alignment with their monetary policy. They are accepted as a medium of payment, legal tender, and a safe store of value by all citizens, enterprises, and government agencies. They are freely convertible against commercial bank money and cash.

The RBI said that the key motivations for exploring the issuance of CBDC in India among others includes reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in payments system, adding efficiency to the settlement system, boosting innovation in cross-border payments space and providing public with uses that any private virtual currencies can provide, without the associated risks. 

In addition, the use of offline features in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not available, the concept note said.

Explaining about the issuance and management of CBDCs, the RBI said that there are two models – direct model and indirect model. In the direct model, the central bank is responsible for managing all aspects of the CBDC system including issuance, account-keeping and transaction verification.

In the indirect model, the central bank and other intermediaries, banks and any other service providers, play their respective roles. In this model, the central bank issues CBDC to consumers indirectly through intermediaries, it is similar to the current physical currency management system.

The central bank also said that CBDC can be mainly classified into two types –  general purpose or retail and wholesale. While retail CBDC would be potentially available for use for all – private sector, non-financial consumers and businesses, wholesale CBDC is designed for settlement of interbank transfers and other related wholesale transactions.

Amid the central bank’s increasing focus on CBDC, the virtual currency had also found a mention in the central bank’s ‘Payments Vision 2025’ document. 

Earlier, experts told Inc42 that CBDCs are expected to play a major role in cross-border payments by reducing costs and improving efficiency. In terms of domestic use, CBDCs can be utilised for purpose-driven causes and can also help in tracking and tracing its movement, they added.

“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,” RBI Deputy Governor T Ravi Shankar said earlier on the use case of CBDCs.