Home / Markets / Cryptocurrency /  Why RBI thinks India should go for basic models of central bank digital currency
Listen to this article

The Reserve Bank of India (RBI) on Tuesday said India must go for basic models of central bank digital currency initially given its dynamic impact on microeconomic policy.

In its report released on 'Trend and Progress of Banking in India 2020-21', the RBI said in its basic form, a central bank digital currency (CBDC) provides a safe, robust, and convenient alternative to physical cash.

"Depending on various design choices, it can also assume the complex form of a financial instrument. In comparison with existing forms of money, it can offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement," the RBI said

RBI further added that Central banks across the globe are now deliberating on how to implement digital currencies, moving ahead from their initial exploratory forays.

In this context, RBI feels certain crucial questions about design elements of central bank digital currency need to be navigated before its introduction, for instance, whether the CBDC would be general purpose and available for retail use, or would it be for wholesale use.

Furthermore, in a country like India, RBI said the decision about distribution architecture, i.e., whether the digital currency would be issued directly by the central bank or through commercial banks, needs to be carefully weighed.

"Gauging the magnitude of issuance, distribution will also help in identifying the appropriate underlying technology best suited to handle such operations.

Given its dynamic impact on macroeconomic policy making, it is necessary to adopt basic models initially, and test comprehensively so that they have minimal

impact on monetary policy and the banking system."

The RBI said India’s progress in payment systems will provide a useful backbone to make a state-of-theart CBDC available to its citizens and financial institutions.

The RBI has been examining use cases and working out a phased implementation strategy for the introduction of CBDC with little or no disruption. Earlier this month, the Central Board of the RBI had discussed various aspects relating to CBDC and private cryptocurrencies.

Parliament was recently informed that the government had received a proposal from the RBI in October 2021 for the amendment to the Reserve Bank of India Act 1934 to enhance the scope of the definition of 'bank note' to include currency in digital form.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Recommended For You
Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsFeedbackRedeem a Gift CardLogout