Business News/ Industry / Banking/  RBI charts plan for digital rupee pilot

The Reserve Bank of India on Friday said that it will soon commence pilot launches of a central bank backed digital currency (CBDC) or e-rupee for specific use cases, as it released a concept note on the digital currency.

The central bank said that it has been exploring the pros and cons of introduction of the CBDCs for some time. Finance minister Nirmala Sitharaman in her budget speech in February had indicated that the central bank will launch a digital version of the rupee in the next financial year (FY23).

“CBDC holds a lot of promises by way of ensuring transparency, and low cost of operation among other benefits and the potential to expand the existing payment systems to address the needs of a wider category of users," the central bank said.

The central bank added that given the compelling motivations for introducing CBDCs it is working on a phased implementation strategy, which will involve various stages of pilots.

“RBI is currently engaged in working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch, and simultaneously examining use cases that could be implemented with minimal or no disruption," the central bank said.

“As the extent and scope of such pilot launches expand, RBI will continue to communicate about the specific features and benefits of e , from time to time," it said.

Depending on the different use cases, multiple technological options shall be tested and based on the outcomes, the final architecture shall be decided, it added.

RBI is exploring the option of implementation of account-based CBDC in the wholesale segment and token-based CBDC in retail segment via a graded approach.

The central bank said that account based CBDC is like the existing account forms of money shall not be considered to be a new form of money, instead as the digital form of ‘book money’, which are credit balances on accounts. In contrast, token-based CBDCs are a new form of money where the central banks’ liability is incorporated in the token.

RBI’s approach towards the CBDC will see the central bank build a prototype as per the recommendations of the working group set up in 2020, specify technical requirements to technology partners and test the idea in an operationally controlled environment to examine its functionality, including the design, deployment plan and success criteria.

The central bank said that it is deliberating on the various aspects of technological choices available, which includes suitability of Tech Architecture (DLT - distributed ledger technology/ Centralized/ Hybrid; Open Source/Proprietary), security of the Token Creation Process and Central Bank Node, standards and protocols to be followed by each stakeholder, robust preventive counterfeiting tech choices (Robustness of Verifier technology), security considerations; especially in offline transactions and smart contract features and its use cases in CBDC in both wholesale and retail segments.

The central bank added that since CBDC, across the world, is in conceptual, development, or at pilot stages, therefore, in the absence of a precedence, extensive stakeholder consultation along with iterative technology design must take place to develop a solution that meets the requirements.

“While the intent of CBDC and the expected benefits are well understood, it is important to identify innovative methods and compelling use cases that will make CBDC as attractive as cash if not more," the RBI said.

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Updated: 08 Oct 2022, 06:53 AM IST
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