Home Digital Currencies CBDC pilots in India possible in ‘near future’

CBDC pilots in India possible in ‘near future’

Cash in India: the RBI's deputy governor told an online audience that "perhaps the time for CBDCs is nigh" | Credit: rupixen; Pixabay

Central bank digital currency (CBDC) experimentation could be possible in the ‘near future’ in India, according to a central bank deputy governor.

India has so far had a relatively low profile in international CBDC discussions although, at the start of the year, the Reserve Bank of India (RBI) said that it was ‘exploring the possibility as to whether there is a need for a digital version of fiat [government-backed] currency and, in case there is, then how to operationalise it’.

Delivering a keynote address during a webinar on the topic of ‘Central Bank Digital Currencies – Is This the Future of Money?’ ahead of an online panel discussion organised on 22 July by the Vidhi Centre for Legal Policy, a think-tank, T Rabi Sankar said that “conducting pilots in wholesale and retail segments may be a possibility in near future”.

Wholesale CBDCs are for inter-bank use, while retail CBDCs (also known as general purpose CBDCs) would be available to the general population. The latter are a “more far-reaching” innovation, according to the Bank for International Settlements (BIS).

The RBI is “currently working towards a phased implementation strategy and examining use cases that could be implemented with little or no disruption,” Sankar told the online audience.

RBI examining technology options

Areas under examination by the RBI include: the underlying technology – whether it should be a distributed ledger or a centralised ledger, for instance, and whether the choice of technology should vary according to use cases; whether a system should be token-based or account-based; distribution architecture – whether a CBDC would best be issued directly the RBI or through commercial banks; and the degree of anonymity provided to users.

Most central banks worldwide are also investigating these questions, with some more progressed than others. In an advance chapter (released on 23 June) of its Annual Economic Report for 2021, BIS set out its recommended approach to fundamental elements of CBDC design, stating a preference for account-based systems built on digital ID. CBDCs would, the report stated, best function as part of a two-tier system where the central bank and the private sector ‘work together to do what each does well’.

Sankar, who is one of four RBI deputy governors, cited factors in favour of introducing a CBDC to include “protecting the general public in an environment of volatile private virtual currencies” and reducing the cost of printing, transporting, storing and distributing traditional paper notes. But he also pointed out that, in developing countries, lower levels of technology adoption “may limit the reach of CBDCs and add to existing inequalities in terms of accessing financial products and services”.

He pointed out that although interest in CBDCs is “near universal, very few countries have reached even the pilot stage.”  But he closed his speech by saying that CBDCs are “likely to be in the arsenal of every central bank going forward” and that “setting this up will require careful calibration and a nuanced approach in implementation”. He concluded: “As is said, every idea will have to wait for its time. Perhaps the time for CBDCs is nigh.”

Blockchain news outlet Ledger Insights described India’s CBDC plans ‘one to watch’ in a report earlier this year, saying that the country’s biometric ID programme, Aadhaar, ‘should make the rollout of a CBDC considerably simpler compared to most countries that lack a centralised identity system.’

CBDC discussions intensifying

The webinar was held almost four months after the think-tank published a paper entitled ‘A Central Bank Digital Currency for India – Proceeding with Cautious Optimism’ that it described as aiming to ‘initiate and inform’ public discourse on CBDC and ‘analyse the preliminary considerations for a retail CBDC issuance in India’.

The 52-page paper – co-authored by Shehnaz Ahmed, a senior resident fellow and fintech lead at the think-tank, and Krittika Chavaly, a research fellow – concluded that it was premature ‘at this stage’ to conclude whether India should actually issue a CBDC.

Ahmed moderated the 22 July webinar, during which the panel discussion featured Washington DC-based International Monetary Fund senior financial sector expert Ashraf Khan and Saugata Bhattacharya, executive vice-president and chief economist at Mumbai-headquartered Axis Bank.

The wide-ranging discussion took in topics such as technology options and how a potential CBDC could help with financial inclusion. On the latter topic, Khan emphasised the importance of thoroughly researching potential digital currency users’ needs.

WATCH ‘Central Bank Digital Currencies – Is this the Future of Money?’ (01:32:39) webinar: T Rabi Sankar’s keynote speech is from 04:18-49:50, with Ashraf Khan and Saugata Bhattacharya’s discussion following

Credit: Vidhi Centre for Legal Policy (via YouTube)

*** The RBI’s ‘Innovation Hub’, whose creation was announced last year, recently named Rajesh Bansal as its first chief executive.  He has previously worked at the RBI in various capacities and was a member of the founding team of Aadhaar.

FURTHER READING

=>>> Global Government Fintech’s dedicated ‘Digital Currencies’ section <==

‘“Sceptical” India investigates central bank digital currency’ – our news story (1 Feb 2021) on the Reserve Bank of India (RBI) confirming that it was mulling a digital rupee as part of a significantly broader communication issued on 25 January about its payments-related activities

GLOBAL GOVERNMENT FINTECH WEBINAR

Global Government Fintech organised an international webinar, in partnership with Amazon Web Services Institute (AWSI), entitled ‘Delivering Central Bank Digital Currencies (CBDCs): Exploring the Technology Challenge’ on 22 April 2021

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Ian is editor of Global Government Fintech and also writes for media including City AM and #DisruptionBanking. He is former UK director for the pan-European media network Euractiv (2011-2018), editor of Public Affairs News (2007-2011) and news editor of PR Week (2000-2007). He was shortlisted for ‘Editor of the Year’ at the British Society of Magazine Editors (BSME) Awards in 2010. He began his career in Bulgaria at English-language weekly the Sofia Echo.