RBI looks to tap tech to keep CBDC transactions secret

The Reserve Bank of India (RBI) is looking at technological solutions and could use those to ensure India’s central bank digital currency (CBDC) transactions are anonymous, a senior RBI official said on Wednesday.

“We are largely looking at a technological solution first. We understand there are technologies possible to do that and we can use any one of those. It is also possible to get a legal provision to ensure anonymity,” said T. Rabi Sankar, deputy governor, RBI.

He noted that what exactly will happen on the issue eventually will depend on how things evolve, but anonymity is a basic feature of currency and to that extent, it is different from homegrown payments system UPI (unified payments interface).

“The fundamental feature of currency and cash is anonymity. One of the reasons it is still being used in many developed countries, to large extent, is because people love their privacy. 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,” said Sankar.

RBI launched on 1 December a pilot for retail digital rupee (e ₹ R) with four banks in four cities, a month after testing the wholesale CBDC.

Governor Shaktikanta Das said the amendment in the RBI Act with regard to CBDC, says that currency will also include digital currency.

Finance minister Nirmala Sitharaman in February announced a proposal to amend the RBI Act to include CBDC alongside traditional banknotes.

The government had received a proposal from RBI in October 2021 to amend the Act and enhance the scope of the definition of ‘bank note’ to include currency in digital form.

“That is the amendment which has been brought. Therefore, in all respect, there is no difference, in the eyes of law, in the treatment between paper currency and digital currency. The Income Tax department has certain limits for cash payments, beyond a certain limit, you have to give your Pan Card number. The same rules will apply in the case of CBDC also,” said Das.

He said that it is early days for CBDC and the pilot on the retail segment has just started.