Synopsis

The central bank will also commence pilot launches of e-rupee for specific use cases, it said in a statement. As the extent and scope of such pilot launches expand, the RBI will continue to communicate about the specific features and benefits of digital rupee, from time to time. “The e-rupee will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper,” the RBI said.

The Reserve Bank of India on Friday said it will soon commence pilot launch of e-rupee for specific use cases and also released a concept note on Central Bank Digital Currency (CBDC) that aims to create awareness about such currencies in general and the planned features of the Digital Rupee in particular.

As the extent and scope of such pilot launches expand, the RBI will continue to communicate about the specific features and benefits of digital rupee, from time to time, it said in a statement.

“The e-rupee will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper. It also has all the transactional benefits of other forms of digital money,” the RBI said.

As for the concept note, it discusses key considerations such as technology and design choices, possible uses of digital rupee, issuance mechanisms, etc, the central bank said. It examines the implications of introduction of CBDC on the banking system, monetary policy, financial stability, and analyses privacy issues.

RBI said it broadly defines CBDC as the legal tender issued by a central bank in a digital form. It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and shall be accepted as a medium of payment, legal tender and a safe store of value. CBDCs would appear as liability on a central bank’s balance sheet.

In the Union Budget for 2022-23, the finance minister had said the RBI would roll out a digital equivalent to the rupee in the current financial year.

In an interview last month, RBI Deputy Governor T Rabi Sankar said that the central bank will launch its digital currency as a pilot project this year. CBDC is the most efficient system for cross-border payments, he said. Though, he reiterated that RBI aims to give viable alternatives and not going for a cashless society.

Sankar had earlier said that CBDCs can “kill” whatever little case that exists for private virtual currencies like Bitcoin.

India’s central bank has vehemently opposed cryptocurrencies such as Bitcoin and expressed serious concerns about cryptocurrencies. The RBI said they do not have underlying value for such instruments which are essentially speculative in nature.

However, CBDC, being a sovereign currency, holds unique advantages of central bank money viz. trust, safety, liquidity, settlement finality and integrity, the RBI said.

Finance Minister Nirmala Sitharaman had during her budget speech in February also proposed a 30% levy on gains from transfer of virtual digital assets, which has been implemented from April 1. However, the government has yet to clarify its stance on whether cryptocurrencies would be regulated or banned.

The government has maintained that imposition of the tax did not mean giving these assets recognition and that they would be dealt with separately after intensive consultations.

RBI today said recent innovations in technology-based payments solutions have led global central banks to explore the potential benefits and risks of issuing a CBDC so as to maintain the continuum with the current trend in innovations.

Thus, RBI has also been exploring the pros and cons of introduction of CBDCs for some time and 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 for the issuance of its own digital rupee, with minimal or no disruption to the financial system. ‘

“Currently, we are at the forefront of a watershed movement in the evolution of currency that will decisively change the very nature of money and its functions.”

As for implications of CBDC for liquidity management, RBI said the change in form of the currency (from physical to digital) may bring about a change in the behaviour of public holding of money.

There would be a much larger impact on reserve money, money supply and net demand and time liabilities (NDTL) of banks if CBDC is remunerated because of potential scope for substitution of deposits of commercial banks by CBDCs. Consequently, commercial banks will be constrained for funds and rely more on central bank liquidity provisions. As a result, the central bank balance sheet will get bloated increasing reserve money due to financial disintermediation, the central bank said.

However, non-remunerated CBDC can significantly minimise potential disruptions to monetary policy and the financial intermediation process.

“The Digital Rupee system will further bolster India’s digital economy, make the monetary and payment systems more efficient and contribute to furthering financial inclusion,” the central bank said.

Source : https://economictimes.indiatimes.com/news/economy/policy/rbi-releases-concept-note-on-central-bank-digital-currency-to-commence-pilot-launch-of-e-rupee-soon/articleshow/94704437.cms