The Reserve Bank Of India (RBI) on 7 October released a concept note on the Central Bank Digital Currency (CBDC).
Key points
- The CBDC is a digital form of currency notes issued by a central bank.
- This Concept Note explains the objectives, choices, benefits and risks of issuing a CBDC in India, referred to as e₹ (digital Rupee).
- The e₹ will provide an additional option to the currently available forms of money.
- 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, in particular.
- The Note also seeks to explain Reserve Bank’s approach towards introduction of the digital Rupee. Reserve Bank’s approach is governed by two basic considerations – to create a digital Rupee that is as close as possible to a paper currency and to manage the process of introducing digital Rupee in a seamless manner.
- Reserve Bank broadly defines CBDC as the legal tender issued by a central bank in a digital form.
- It is akin to sovereign paper currency but takes a different form.
- CBDCs would appear as liability on a central bank’s balance sheet.
- CBDC will be a medium of payment, a legal tender and a safe store value for all citizens, businesses, governments and others, which can get it converted in the bank money or cash.
- The digital currency will be freely convertible against commercial bank money and cash. It will be a fungible legal tender for which holders need not have a bank account.
- In the Union Budget for 2022-23, the finance minister had said the RBI would roll out a digital equivalent to the rupee in the current financial year.
- CBDC, being a sovereign currency, holds unique advantages of central bank money viz. trust, safety, liquidity, settlement finality and integrity.
Objectives of CBDC
- The key motivations for exploring the issuance of CBDC in India among others include reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in payments system, adding efficiency to the settlement system, boosting innovation in cross-border payments space and providing public with uses that any private virtual currencies can provide, without the associated risks.
- The use of offline feature in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not available.
