RBI To Start CBDC Trial-Run Before Year-End: What It Means For Stakeholders

The Reserve Bank of India (RBI) has asked four public-sector banks to start a trial run of central bank digital currency (CBDC) before a country-wide launch this year. Last week, it held several consultations with fintech companies and banks to iron out a roll-out strategy.

Although a final decision would be taken after a detailed study, senior banking officials cited by Business Standard said RBI might formally launch the currency by the end of this year.

CBDC is the digital form of the country’s sovereign currency. Its records will be maintained using a distributed ledger technology (DLT) like the blockchain. RBI said that all CBDC transactions would be traceable, with “no scope of anonymous transaction.”

According to a Moneycontrol report, RBI is also consulting with several fintech companies, including the New York-listed financial company FIS Inc global, for the rollout. On August 26, FIS Inc global elaborated on its latest infrastructure RealNet Central, built for CBDC transactions.

FIS Inc senior director Julia Demidova, in an interview with Moneycontrol, said the company is advising central banks globally on various CBDC topics, including offline and programmable payments, policy toolkits, interest-bearing CBDC products, financial inclusion, etc.

“Whether it is a wholesale or retail CBDC transaction, our technology can be extended to commercial banks where they can test and tokenise central bank money in the form of digitally regulated money,” Demidova said.

What Does CBDC Offer?

Financial inclusion and payment risk elimination are vital areas that CBDC aims to solve. By making people use CBDC, India can bring more people into the formal economy and reduce cash dependency.

Axis Bank earlier this year did a transaction using blockchain, where the payment settlement happened immediately, thereby eliminating payment risk.

In 2016, ICICI became the country’s first bank to use blockchain technology to authenticate real-time remittance transaction messages and original international trade documents, which helped settle the transaction without much risk within a few minutes instead of days.

CBDC is also expected to help eliminate payment-related risks due to it also using blockchain as the back-end technology.

The Government’s Stance On CBDC

Prime Minister Narendra Modi, in February 2022, spoke about CBDC while addressing BJP members and leaders in a virtual conference.

“The digital rupee will be the digital form of our physical rupee and will be regulated by the RBI. CBDC will make digital payments and online fund transfers more secure and risk-free. The digital rupee will revolutionise the fintech sector by creating new opportunities and lessen the burden in handling, printing, and logistics management of cash,” PM Modi said, as per various media sources.

Finance Minister Nirmala Sitharaman announced in the Union Budget 2022 that the RBI will issue a CBDC in this financial year and that they will apply a graded approach to launching the digital rupee.

What Else Did RBI Do Concerning CBDC?

As per an internal circular of the RBI dated January 7, 2022, the RBI had set up a fintech department as a point of contact for all fintech-related activities, including the launch of CBDC. 

Former finance secretary, S.C Garg, at that time, told in the Financial Express Digital Currency Conclave 2022 that as the current Contract Act does not deal with smart contracts, India will need a new law to bring smart contract businesses under regulation.

“In addition to that, as there is a special law to deal with securities and contracts, likewise, we should have a special law to deal with digital assets,” Garg said, adding that it may be time for digital currency to be issued in the country.