In preparation for the launch of a new digital currency backed by the government of India, the Reserve Bank of India (RBI) has released a 50-page concept paper (CBDC).
The RBI’s Fintech Department, established in January 2022 to formulate cryptocurrency rules and develop a central bank digital currency, has released its first comprehensive study of its kind.
The RBI has announced that it would shortly begin a trial of the digital rupee for specified use cases, but no exact date was provided. Deputy Governor T Rabi Sankar of the RBI said last month that a pilot project to test out digital currencies would be initiated later this year.
According to the RBI’s concept paper, the introduction of the digital rupee would increase consumers’ access to several means of payment. As a digital currency, it is expected to be more convenient, quick, and inexpensive than paper bills.
It was emphasized in the central bank’s letter that “new ways and compelling use cases that will make CBDC as desirable as cash, if not more,” must be found.
To reduce the operational costs of managing physical cash, to promote financial inclusion, to bring resilience, efficiency, and innovation to the payments system, to increase innovation in the cross-border payments space, to give the public the same benefits that private virtual currencies offer without the risks, and to provide availability and resilience when electrical power or mobile networks are down, are all reasons why the RBI decided to create a CBDC.
India Crypto Background
The Reserve Bank of India has been firm that outlawing cryptocurrencies is the best option for India. Sankar predicted that CBDCs would destroy the potential use case for private cryptocurrencies in June 2022.
India’s once-thriving crypto sector has experienced significant difficulties, including additional taxes and a shadow ban on exchanges, causing trade volumes to drop precipitously before the release of the concept note. The collapse of the policy body that represented crypto interests, an inquiry into ten exchanges, layoffs, and a worldwide bear market in cryptocurrencies didn’t help matters either.
It seems that the RBI is more confident in issuing wholesale and retail CBDCs after the issuance of the concept note on Friday.
The RBI has not declared a preference as to whether it would adopt a regulated database or distributed ledger technology for its CBDC. As an alternative, it has shown a willingness to adapt to the changing nature of technology.