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Business News/ Opinion / Views/  What an e-rupee really is must be crystal clear
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What an e-rupee really is must be crystal clear

RBI’s concept note on its CBDC is out and a digital rupee is ready for trial runs. For success, a few aspects of its design must be sharpened. We need a well-aimed launch, not a hasty one

Photo: iStockPremium
Photo: iStock

The Reserve Bank of India (RBI) could have avoided a mention of ‘barter’ in its brief history of money that opens its ‘Concept Note on Central Bank Digital Currency’ for being just another dubious story of origin, but does a fine job overall of posing cash as an abstract thing whose form—physical or digital—makes no difference to its purpose as a medium of exchange, unit of account or store of value: It is simply an IOU, a liability of the issuer. Hence, just as a banknote holds RBI’s promise to pay (a safe asset in our hands), so would a digital rupee issued as legal tender. Such a CBDC could also reduce currency cost, lower settlement risk, raise systemic efficiency and enable innovation in spheres like global transfers and programmable money. Released on Friday, RBI’s concept note proclaims it ready for e-rupee trials as part of a strategic implementation plan geared for minimal disruption. Indeed, it’s an evolutionary marker. Prudence demands caution not just on its monetary effects, but also its design, popular clarity on which will also be crucial to success.

That RBI must launch a digital option is clear from the crypto challenge. If sovereign money is to resist getting outmoded by private tokens offering to retain their real value better, then a do-no-harm approach to monetary stability must first address the impact of an e-rupee on money supply, ideally kept firmly in check to cap inflation. RBI’s note is lucid on this risk. So, too, on the dangers of disintermediation; it rejects an interest-paying CBDC because it might lure enough funds to leave lenders out of the loop. But the concept details spelt out by RBI are a let-down. Let’s place it under the lens of four ‘P’s of marketing. As a Product, it’s a novelty and so two versions of it are bound to cause confusion. While an account-based wholesale CBDC for institutional use has its plus-points, it would be best to call it something else. Let the ‘e-rupee’ title be claimed only by a retail CBDC for all, one issued as tokens (with digital access keys) that mimic banknotes and can survive offline. As for Price, the second P, one-to-one rupee parity makes sense. On Placement, while an indirect interface—with banks or wallets as intermediaries—will be less disruptive, we should keep its technology flexible for a gradual shift at some point to a hybrid or direct model of finance that lets RBI use deposit rates directly as a policy tool, keeps e-rupee savers free of bank-failure risk and pushes lenders to focus on risk-pricing skills. Likewise for global integration, let’s keep our prospects open. Ledger distribution calls can be taken accordingly.

The success of an e-rupee will also depend on the fourth P: Promotion. The Unified Payments Interface (UPI), which a retail CBDC may use as its base, already enables zippy transfers. For a CBDC to set itself apart, it will need cash-like appeal: no bank needed, no name noted. The first part can be assured by the internet, but the reality of digital trails and our missing privacy law mean the second bit remains fuzzy. Directly held e-rupee keys will be safer from prying eyes than bank swipes, no doubt, but “reasonable anonymity for small value transactions" is all RBI can offer at this juncture. Here, too, single-rule clarity will make the concept easier to sell earnestly. An arbitrary split of high versus small value would be too complex for would-be users to get. Yet, what an e-rupee is must be crystal clear to everyone. Let’s get our e-rupee right, even if that pushes its final launch forth a bit.

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Published: 09 Oct 2022, 09:32 PM IST
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