India’s apex bank will soon pilot a digital version of the Indian currency

Mumbai: India’s apex bank — the Reserve Bank of India (RBI) — has said it will soon begin piloting a digital version of the Indian currency, the rupee, for specific use cases.

It has also published a concept note on central bank digital currency (CBDC), which aims to create awareness about such currencies in general and the planned features of the digital rupee in particular, an official RBI release said.

RBI’s concept note states that a central bank digital currency is a sovereign currency issued by central banks in accordance with monetary policy. It will appear as a liability on the central bank’s balance sheet.

“The concept note also discusses key considerations such as choice of technology and design, possible use of the digital rupee and issuance mechanisms, among others,” the RBI said in a statement.

According to the concept note, digital currency should be accepted as a means of payment, legal tender and a secure store of value by all citizens, businesses and government agencies.

The digital currency will be freely convertible against money and money of commercial banks. It will be a fungible legal tender for which holders do not need to have a bank account.

In the Union Budget 2022-23, the finance minister said the RBI will launch a digital equivalent of the rupee in the current financial year.

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

The digital rupee is expected to reduce the cost of issuing money and transactions. Faced with the declining use of paper currency, central banks are now looking to promote a more acceptable electronic form of currency.

The central bank’s digital currency will be supported by India’s state-of-the-art payment systems that are affordable, convenient, safe and secure. The Apex bank’s concept note states that the e-rupee will support India’s digital economy, improve financial inclusion and make money and payment systems more efficient.

“The e-rupee will provide an additional option to the currently available forms of money. In essence, it is no different from banknotes, but since it is digital, it is likely to be easier, faster and cheaper. It also has all the transactional advantages of other forms of digital money,” the RBI statement said.

The concept note states that the digital currency should be developed as a platform that is highly scalable to support very high transaction volume and speed without performance degradation. It must be robust to ensure financial ecosystem stability and have tamper-proof access control protocols and cryptography for data safety, among other features.

The central bank’s digital currency is expected to generate massive data sets in real time. “Once anonymity concerns are taken into account, appropriate analyzes of big data generated by CBDCs can assist in evidence-based policy making. It can also become a rich source of data for financial product insight service providers,” the concept note states.

Emphasizing consumer protection, RBI calls it an important pillar of financial stability. The central bank called for a consumer protection framework that should take into account differences in consumer digital literacy and ways to increase consumer understanding and transparency.

RBI has called for seamless access to digital currency by users. It also emphasizes effective and efficient redressal of customer grievances through a robust mechanism.

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