The Reserve Bank of India (RBI) has become the latest central bank to reveal its interest – albeit expressed cautiously – in potentially issuing a central bank digital currency (CBDC).
The RBI confirmed that it is mulling a digital rupee as part of a significantly broader communication issued on 25 January about its payments-related activities. It said that it is ‘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’.
The RPI’s tone is cautious – and detail provided is limited – in a 142-page ‘Booklet on Payment Systems’ released on 25 January that allocates just two paragraphs to a potential CBDC.
But just four days after the booklet’s publication, in a sign that momentum could be building for an Indian CBDC, the country’s lawmakers set the wheels in motion to enable a CBDC in legal terms. The Lok Sabha, which is the lower house of India’s parliament, on 29 January listed ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ as one of 20 planned new bills.
‘Exploring the possibility’
‘Innovations are changing the payments space rapidly. This has made central banks around the world to examine whether they could leverage on technology and issue fiat money in digital form,’ notes the RPI’s booklet, which has the full title ‘Payment and Settlement Systems in India: Journey in the Second Decade of the Millennium’.
‘Private digital currencies / virtual currencies / cryptocurrencies have gained popularity in recent years,’ the document continues. ‘In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks. Nevertheless, RBI is exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it.’
In respect of the legal aspect, the bill would ‘create a facilitative framework for creation of the official digital currency to be issued by the RBI’. It would also ‘seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.’
‘One to watch’ as global CBDC interest grows
In stepping up its interest in a CBDC, the central bank of India – the world’s second most populous country – is taking a path taken by the majority of central banks worldwide.
China, the world’s most populous country, is widely seen as a CBDC frontrunner with its rapidly progressing digital yuan, while the European Central Bank (ECB) will publish a ‘detailed analysis’ in the spring, ahead of decision on whether to launch a digital euro.
India’s biometric ID programme, Aadhaar, ‘should make the rollout of a CBDC considerably simpler compared to most countries that lack a centralised identity system’, according a report on Ledger Insights. The blockchain news outlet pointed out that ‘legislation is often another hold-up and that appears to be progressing’ in India, labelling the country’s CBDC plans ‘one to watch’.
Separately in India, momentum is building behind the central bank’s new ‘Innovation Hub’. The RBI announced its plans for the entity in August 2020 and Kris Gopalakrishnan, co-founder of India-headquartered tech company Infosys, has been named as its first chairperson. Applications recently closed for the role of chief executive.