RBI to Introduce India’s Own Digital Currency: Know here...

As a result, the RBI is trying to make India's Central Bank Digital Currency (CBDC) operational in FY2023. Discussions on Central Bank Digital Currencies (CBDCs) have moved from the margins to the mainstream in less than a year.

The Reserve Bank of India, in its annual report released on Friday, May 27, said it would adopt the path of a "graded approach" towards the introduction of the Central Bank Digital Currency. With this, India will join certain countries that have their own Central Bank Digital Currency (CBDC), which refers to the virtual form of a fiat currency.

RBI's annual report for FY 2021-22 pointed out, "The Reserve Bank proposes to adopt a graded approach to the introduction of CBDC, going step by step through stages of Proof of Concept, pilots, and the launch." A proof of concept is an exercise in which work is focused on determining whether an idea can be turned into reality or to verify if the idea will function as envisioned.

The annual report stated that the "Reserve Bank has been exploring the pros and cons of the introduction of CBDC in India. The design of the central digital coin needs to be in line with the objectives of its monetary policy, financial stability, and efficient operations of currency and payment systems. Accordingly, the appropriate design elements of CBDCs that could be implemented with little or no disruption are under examination."

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The introduction of CBDC has been announced in the Union Budget 2022-23, and an appropriate amendment to the RBI Act, 1934 has been included in the Finance Bill, 2022. The Finance Bill, 2022, has been enacted, providing a legal framework for the launch of CBDC, the RBI mentioned in its annual report. In India, legal enablers for a digital currency have been implemented via the Finance Bill, 2022.

The Reserve Bank of India (RBI) has been debating various features of the central bank's digital currency and private Cryptocurrencies for quite some time now. The central bank has been working on Central Bank Digital Currency methods. However, it has expressed reservations about private Cryptocurrencies.

The RBI Governor Shaktikanta Das has already said that "Cryptocurrencies are a very serious concern from the macro-economic and financial stability perspective. CBDCs are presently mostly in the hypothetical stage, with some in proof-of-concept programmes."

A CBDC is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. The only difference between them and traditional cash or fiat currency is that CBDCs are digital. Moreover, the Indian government is considering the adoption of CBDC in two forms, Wholesale CBDC as well as Retail CBDC.

Watch this informative video to gain a comprehensive understanding of the digital rupee and its potential impact on the Indian economy. India's own digital currency is poised to revolutionize the way we interact with money.

In the previous year, while stating the definition of CBDC, RBI said, "CBDC is a digital or virtual currency, but it is not comparable to the private virtual currencies that have mushroomed over the last decade." The digital rupee is essentially going to be the digital representation of a rupee backed by the Reserve Bank of India (RBI).

The retail frenzy surrounding private Cryptocurrencies, on the other hand, has contributed to the rapid development of CBDCs by central banks. However, a CBDC can't be a direct replacement for a private Cryptocurrency because of the different purposes it would serve.

Furthermore, unlike Bitcoin, which is a Cryptocurrency built on the underlying blockchain technology allowing users to remain anonymous, the official digital currency will have the backing of the RBI.

The creation of a Central Bank Digital Currency based on blockchain technology, as well as bringing virtual digital assets into the tax net at the highest rate of 30%, will assist in curbing speculative play, especially in the Cryptocurrency space. The Finance Minister, has announced in the budget that Cryptocurrencies and other virtual assets be subject to a 30% income tax since April 01, 2022.

'Innovation Hubs' have been set up by RBI...

The Reserve Bank Innovation Hub (RBIH) was established as a wholly-owned subsidiary of the Reserve Bank to support innovation in a sustainable and institutional manner. The RBI Innovation Hub is based in Bengaluru, India, and has an independent Board of Directors comprised of distinguished representatives from industry and academics.

The RBI Innovation Hub will collaborate with financial sector institutions, technology, industry, and academic institutions to coordinate efforts for the exchange of ideas and development of prototypes related to financial innovations in order to create an eco-system that will promote access to financial services and products while also advancing financial inclusion. It would also provide the necessary internal infrastructure to support FinTech research and allow collaboration with entrepreneurs and innovators.

Central Bank Digital Currency, due to its inherent potential to change the way value transfer happens, will provide a more resilient, innovative, and competitive payment system for households, businesses, and economies.

To conclude...

India's sovereign-backed CBDC, or digital rupee, would have the same trappings and level of trust as the physical rupee and will ride the latest technologies. It is anticipated to be more efficient, less expensive, transparent, and secure. India isn't the only country attempting to implement a digital legal tender system. Various central banks worldwide are experimenting with projects such as the digital dollar, e-yuan, and digital euro.

The 'Digital Rupee' (CBDC) will be a game-changer for the Indian economy. It will enable efficient and cheaper currency issues and circulation. This is a success not only for Digital India but also for blockchain adoption, as it opens up new avenues for innovation, monetary efficiency, and a robust economy. In the long term, India will have the necessary infrastructure in place to emerge as a global financial technology leader in the coming decades.

RBI Governor Shaktikanta Das has said that the "Reserve Bank does not want to rush and is carefully examining all aspects before the introduction of the CBDC."

Warm Regards,
Mitali Dhoke
Jr. Research Analyst