The Reserve Bank of India (RBI) published its “Report on Trend and Progress of Banking in India 2020-21” on Tuesday. Central bank digital currencies are covered in the 248-page report. A central bank digital currency (CBDC) complements physical cash by providing a safe, robust, and convenient alternative, according to the RBI, adding that the currency can also be designed as a financial instrument based on various design parameters.”
The RBI further stressed, “In comparison with existing forms of money, it can offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement.”
Prior to the introduction of a central bank digital currency, the Indian central bank stressed that “crucial questions” must be clarified. CBDC-R is for retail use. CBDC-W is for wholesale use. The issue concerns whether CBDC-R or CBDC-W will be general-purpose and available for retail use.
“In a country like India,” said the RBI, “decisions about the distribution architecture, that is, whether CBDCs are issued directly by the central bank or through commercial banks, should be carefully considered.” Noting that gauging the magnitude of issuance and distribution will help identify “the appropriate underlying technology best suited to handle such operations,”
The apex bank further explained, “Given its dynamic impact on macroeconomic policy making, it is necessary to adopt basic models initially, and test comprehensively so that they have minimal impact on monetary policy and the banking system.”
According to the RBI, the introduction of a central bank digital currency would enhance the efficiency of cross-border payments and can provide an alternative to correspondent banks in the coming years.” The report further explains, “India’s progress in payment systems will provide a useful backbone to make a state-of-the-art CBDC available to its citizens and financial institutions.”
As of now, RBI Governor Shaktikanta Das has said cryptocurrency raises serious and major concerns for the central bank. An RBI board meeting recently called for the Indian government to impose a complete ban on cryptocurrency, arguing that a partial ban will not work. However, the Securities and Exchange Board of India (SEBI) is reported to be planning to regulate crypto assets.