RBI to launch CBDC pilot project soon; blockchain world high on spirits

New Delhi: The Reserve Bank of India (RBI) on Friday launched its central bank digital currency (CBDC) concept note, which was announced by Finance Minister Nirmal Sitharaman in Parliament during her budget speech in February.

The RBI clarified that the concept note aims to create awareness about the CBDC and the functions of the digital rupee (e₹). It explains the objectives, choices, benefits and risks of CBDCs in India.

It discusses technology and design choices, possible uses of the Digital Rupee, issuance mechanisms and examines the implications of the introduction of CBDC on the banking system, monetary policy, financial stability and privacy issues.

RBI will soon start pilot launches of CBDC for specific use cases. As the scale and scope of such pilot launches expand, RBI will continue to communicate the specific features and benefits of CBDC, from time to time.

The digital rupee or CBDC in India will be legal tender issued by the RBI and will be treated as equivalent to sovereign currency and exchangeable one-to-one on par with the fiat currency.

It will be in line with RBI’s monetary policy and will appear as a liability in the central lender’s balance sheet. CBDC is a fungible legal tender for which holders do not need to have a bank account.

CBDC will be a means of payment, a legal tender and a safe store value for all citizens, businesses, governments and others, who can have it converted into bank money or cash. CBDC aims to speed up transactions and reduce costs.

The RBI also expressed concern over the popularity of cryptocurrency in recent years. The spread of crypto-assets can pose significant risks linked to money laundering and the financing of terrorism, the central bank fears.

“Uninterrupted use of crypto-assets may pose a threat to monetary policy objectives as it may lead to the creation of a parallel economy and is likely to undermine monetary policy transmission and the stability of the domestic currency,” it said.

Developing CBDC can provide the public with a risk-free virtual currency that will give them legitimate benefits without the risks of trading private virtual currencies, RBI said. However, the morale of blockchain and crypto players remains high.

Pratik Gauri, Co-Founder and CEO, 5ire hailed the step towards India’s digital currency and appreciated the government’s commitment to financial inclusion. RBI should strive to build a transparent and robust digital infrastructure.”

A centralized system undermines targeted innovation and the development of a transparent and accountable system, he added. “Blockchain and decentralization are necessary for the success of CBDC.”

The market players believe that digital money is a great addition as a payment solution for users and businesses, opening the door to a multitude of payment options that help businesses function smoothly.

Dileep Seinberg, Founder and CEO, MuffinPay, this is one of the most important events in the Indian Fintech industry, which will facilitate the development of enterprise-level use cases.

“It will also pique the interest of major investors in the Indian blockchain ecosystem,” he added. “CBDC-powered use cases and products will be available to mainstream tech companies. In a 24×7 economy, digital Rupee will be a game changer.”

Crypto exchanges are hopeful that the introduction of digital currency will lead to a robust and sound regulatory framework for the digital ecosystem in India, even for the private cryptos.

Shivam Thakral, CEO, BuyUcoin said that digital version of money will make transactions cheaper, secure and easy along with far-reaching effects of financial inclusion and easy implementation of government financial policies.

“As an industry, we welcome the upcoming digital rupee pilot by the RBI and look forward to upcoming crypto regulations,” he adds.

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