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Reserve Bank of India (RBI) Executive Director Ajay Kumar Choudhary on Wednesday said that digital currency will further bolster the digital economy, make payment system more efficient. Choudhary also noted that digital currency will reduce cost involved in physical cash management and also contribute to further financial inclusion.

The RBI Executive was speaking at an outreach seminar on 'Central Bank Digital Currency: The India Story' organised by the Reserve Bank of India. 

The event was organised ahead of a two-day International Financial Architecture Working Group meeting of G20 slated to take place on 30 and 31 January.

The central bank has already launched pilots of CBDC (Central Bank Digital Currency) in the form of e–rupee on a pilot mode, first for the wholesale in late last October and a month later for retail customers in 2022.

Choudhary said the CBDC is just a digital form of the physical currency and will have all its characteristics.

It is non-remunerative that is it does not carry any interest like any currency, noted Choudhary, adding, "E-rupee is also expected to offer features of physical cash like safety and settlement of transactions."

Digital currency aimed to compliment, rather than replace current forms of money

Asserting that the digital currency is aimed to compliment rather than replace the current forms of money, he said, "it should not be construed as a step to replace any of the existing bouquet of payment which are already available with us."

He said the key motivation for exploring the issuance of CBDC in India among others include moving to a digital economy, reduction in production and operation cost involved in physical cash management, which is huge even if suppose 10-15 per cent reduction, fostering financial inclusion, adding efficiency in the settlement system, boosting innovation in a cross-border payment space.

"Supported by the-state-of-the-art payment system of India that is affordable and accessible, convenient, efficient, safe and secure, the CBDC can further bolster the digital economy, make the monetary and payment system more efficient and contribute to further financial inclusion," he asserted.

He also said for future considerations, offline functionality forms is one of the fundamental considerations for the design of E-rupee as it is a defining characteristic of the physical currency.

"In addition to ensuring widespread usage, offline transactions would be beneficial in remote locations. We are in the process of exploring tech feasibility of various available options," he said.

While referring to the launch of the pilots of CBDC in wholesale and retail segments, Choudhary said the RBI is currently working towards a phased introduction of CBDC, going step by step through various stages of pilots culminating in a final launch.

The launch of digital rupee marks a historic milestone in the evolution of money, he said.

The CBDC for retail is a general purpose currency, targeting at individuals and freely accessible exhibiting characteristics of cash albeit in digital form, while CBDC for wholesale limits access to a predefined group of users like financial institutions and corporates, he said.

The RBI ED said over the course of last year, the work on digital currency gained further momentum.

On privacy concerns

However, many experts, including former RBI governor D Subbarao, have flagged concerns over the privacy aspect of CBDC.

Deputy Governor T Rabi Sankar has seemed to acknowledge the concerns on privacy, but was quick to add that the central bank is looking at solutions to make the CBDC at par with paper currency when it comes to having the key feature of anonymity which has ensured that cash is still is used in the developed world.

"How anonymity is to be ensured in the case of a digital currency, because the normal understanding is that anything digital leaves a footprint, can have various solutions," Sankar said.

The RBI is looking at a technological solution and also a legal solution to help assuage the concerns on this problem, he added.

Sankar further said the authorities will create the base by introducing the currency, and then depend on the private sector to innovate and launch various use cases for the same.

On the CBDC being piloted now, RBI governor Shaktikanta Das said central banks issued digital currencies are the future of money and its adoption can help save on logistic and printing costs.

Both Das and also Sankar explained that the CBDC is different from the Unified Payments Interface (UPI), which operates through a link to a person's bank account.

Currently, 115 countries representing 95% of the global GDP are exploring digital currency, he said, adding around 60 countries are in the advanced phase of exploration that is in development, pilot or launch stage.

Eighteen of the G20 countries are exploring it with seven including India already having it in the pilot stage, he added.

Another official of the RBI said users of CBDC in the retail segment will reach 50,000 by the end of this month.

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