Instead of launching its Digital Rupee, a central bank digital currency (CBDC), in one go, the Reserve Bank of India (RBI) has decided to take a graded approach.
This was mentioned in the RBI annual report released on 26 May 2022, which said that it is in the process of verifying the concept of CBDC and it will be launched in phases.
“The design of CBDC needs to be in conformity with the stated objectives of monetary policy, financial stability, and efficient operations of currency and payment systems,” the annual report adds.
The bank said that they are going step by step through the stages, which includes proof of concept, pilot, and the launch. It is also studying all pros and cons before launching CBDC in India.
“The appropriate design elements of CBDCs that could be implemented with little, or no disruption, are under examination,” the report underlined.
To adopt CBDC, the central bank has said in the report that it has made an amendment to the RBI Act, 1934, and that has been included in the Finance Bill, 2022 that will provide a legal framework for the launch of CBDC.
Based on blockchain technology, RBI’s CBDC will be a legal tender in a digital form that will be adopted in two formats: wholesale CBDC as well as retail CBDC. Where wholesale CBDC will serve institutions and banks, retail CBDC will serve common citizens.
But, after this, it seems RBI is now looking for a wait and watch approach and standing by to observe other nations that are in the advanced stage of launching their own CBDC.
However, an economic policy research think tank, the National Council of Applied Economic Research (NCAER) has claimed in its report that CBDCs will be dangerous to institutions, end-users of retail CBDCs, and the RBI’s own reputation.
However, RBI is still varied with cryptocurrencies which can cause damage to the economy. The RBI governor also cited the recent crash of Terra (LUNA) and USD pegged Terra UST, which collapsed and billions of dollars of investors’ money vanished.
RBI Deputy Governor T Rabi Sankar seconded the RBI governor’s view that banning cryptocurrency is the most advisable for countries like India.
It may be noted that during the 2022-23 budget, the finance minister Nirmala Sitaraman said that it was mulling launching its CBDC by December 2022.
During the same budget speech, the Indian government decided to impose a 30% crypto tax on profit from crypto and 1% TDS on every transaction.
The minister also said that CBDC would strengthen the country’s economy, increase efficiency and lower expenses of the country’s currency management system, and provide a stable, regulated digital currency that will compete with other cryptocurrencies.
Nations working on CBDCs
China is one such nation that is expected to launch its CBDC very soon. So far, China is conducting trials of its CBDC in various cities. However, there is no official date yet.
Mu Changchun, director-general of the digital currency institute of China’s central bank, who was speaking at the Hong Kong’s Fintech Week conference last year, said that over 140 million citizens have opened digital yuan wallets and so far over $9.7 billion worth of transactions have already been done as on October 2021.
The official also said that over 1.5 million merchants are already accepting payments using eCNY wallets.
As of March 2022, 87 nations are considering issuing their own CDBC, according to the Atlantic Council, an independent organization based in Washington, D.C. Out of those, 9 countries —The Bahamas, Nigeria, and 7 countries in Eastern Caribbean Union have already launched a centrally governed digital currency.
Developing their own CBDC has only increased as more and more people are adopting cryptocurrency. As of 2020, only 35 nations were thinking of issuing a CBDC, which has now more than doubled in just two years.
With no global standard available today on CBDC, stablecoins, and cryptocurrencies, RBI has taken a slow approach to launching its own CBDC.
This move can be helpful, if nations come together and launch a global CDBC platform where all countries can work together to launch their own CBDC, facilitating the adoption of legal tender across the globe.