The Reserve Bank of India (RBI) is developing a “phased implementation strategy” for a Central Bank Digital Currency (CBDC), according to RBI deputy governor T Rabi Sankar on Thursday. According to him, a pilot to test a general-purpose digital currency is a possibility in the near future.
“Every idea has to wait for its time. Perhaps the time for CBDC is nigh,” Sankar said.
“It would be RBI’s endeavor, as we move forward in the direction of India’s CBDC, to take the necessary steps which would reiterate the leadership position of India in payment systems.”
CBDC won’t replace Cash
Sankar stated in a virtual keynote presentation at the Vidhi Centre for Legal Policy that the central bank is outlining numerous considerations on the scope and legal framework of the planned CBDC, which would likely coexist with cash and other digital means of payment.
“CBDC will be in the arsenal of most if not all central banks in the world. Setting this up will require careful calibration and a nuanced approach in implementation. Drawing board considerations and stakeholder consultations are important,” he added.
“However, conducting pilots in wholesale and retail segments may be a possibility in near future.”
A CBDC is a type of virtual currency or cryptocurrency that a central bank issues as an alternative to its currency. These are mainly stable currencies backed by government reserves, and their value is not susceptible to wild market swings like private crypto assets like Bitcoin or Ethereum.
According to the deputy governor, CBDC is a legal tender issued in digital form by a central bank. “It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different,” Sankar said.
With this, India joins the ranks of big economies such as China, Russia, and the United Kingdom in considering the issuing of their own digital currency.
According to Shankar, 86 percent of the world’s central banks are researching CBDC, while 60 percent are experimenting with it, citing a report by the Bank of International Settlements (BIS). As many as 14% of central banks are in the pilot testing stage.
The RBI, according to Sankar, is also closely considering various issues of creating a general-purpose CBDC on population size. This includes scope (whether retail or wholesale), technology (distributed ledger or centralized ledger), validation base (token or account-based system), and distribution format (directly issued by the central bank or via banks).
He stated that in order to launch a CBDC, an enabling legal structure would need to be considered. This will involve changes to many sections of the RBI Act, including sections 24, 25, and 26, as well as provisions of the Coinage Act of 2011, the Foreign Exchange Management Act, and the Information and Technology Act.
A CBDC has numerous advantages, according to him. These benefits include less reliance on cash, lower printing costs, and a more robust settlement process.
Interestingly, Shankar also stated that private virtual currencies such as Bitcoin do not meet the RBI’s definition of money, and one of the motivations motivating central banks across the globe, including India, to experiment with CBDC is to reduce the dangers of cryptocurrencies on the real economy.
What are the challenges faced by the government?
No one knows exactly what the government plans about the digital currency that the Reserve Bank and the government are going to bring. The government will use its own blockchain to create digital currency, which is 100% controlled by the government. This means that it will be a centralized system. The government can create as many CBDCs whenever it wants and the record of its entire transactions will be in the hands of the government. How will the records on the blockchain that the government is about to build be secure, how will the blockchain of the CBDC be protected from cyber attacks and how will the government determine the security of the CBDC in the vault are some of the big points that the government will have to look at? Mango can convert into Rupee and convert Mango Rupee into CBDC? If the answer is yes then why would one want to take a CBDC? A statement said that it would be used for large transactions i.e. for business so what Will there be transactions in two currencies in the country? If we look at this project, it will take a long time. It is going to be profitable because it is a complicated process. China has also completed work on its digital yuan and its test has also been successful but this too is not yet fully implemented.
What will be the difference between bitcoin and another crypto?
You can treat a CBDC like USDT in a way, the difference being that USDT is used to trade crypto and a CBDC will have nothing to do with crypto. If it remains stable it will have no effect on crypto. As Reserve Bank officials say that after CBDC, people will be curious to know more about private crypto, it may be possible but for now, it is a matter that the government thinks of planning this bitcoin. And another similar crypto came from. CBDC would have got government recognition and we would have been able to transact it with our bank but maybe the government will take some steps after taking crypto, now is the time to tell whether these steps will be right for crypto or not.
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