The Reserve Bank of India (RBI) on October 7, 2022 released a ‘Concept Note’ on central bank digital currency (CBDC) for India. The ‘Concept Note’ discusses key considerations, such as technology and design choices, possible uses of digital rupee, issuance mechanisms, among others.
“The purpose behind the issue of this Concept Note is to create awareness about CBDCs in general, and the planned features of the Digital Rupee (e₹), in particular. It explains the objectives, choices, benefits, and risks of issuing a CBDC in India,” the RBI said in a press release.
“The Note also seeks to explain the RBI’s approach towards the introduction of the CBDC. It examines the implications of the introduction of CBDC on the banking system, monetary policy, financial stability, and analyses privacy issues,” the statement added.
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The RBI said that it will soon commence pilot launches of e₹ for specific use cases. In the ‘Concept Note’, the RBI has also highlighted the need for a robust legal framework to back the issuance of e₹ as another form of currency.
“It was recommended to amend the RBI Act to cover e₹ in the definition of the term ‘bank note’ and also insert a new section in the RBI Act covering features pertaining to e₹ along with necessary exemptions. As the extent and scope of such pilot launches expand, RBI will continue to communicate about the specific features and benefits of e₹, from time to time,” the statement said.
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On the design of the digital currency, RBI has said that it may be decided depending on the circumstances and the need. “The design of e₹ should be compatible with the objectives of monetary and financial stability,” the RBI said.
Like many other central banks, the RBI, too, has been exploring the pros and cons of the introduction of CBDCs for some time.
CBDC is the digital form of a country’s sovereign currency. Its records will be maintained using a distributed ledger technology (DLT) like Blockchain. The RBI has said that all CBDC transactions would be traceable, with “no scope of anonymous transaction.”
“The introduction of CBDC in India is expected to offer a range of benefits, such as reduced dependency on cash, lesser overall currency management cost, and reduced settlement risk,” the RBI has said.
Union Minister of Finance Nirmala Sitharaman had announced in Budget 2022 that the RBI would issue a CBDC in this financial year and that they will apply a graded approach to launching the digital rupee.
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