India’s central bank, the Reserve Bank of India (RBI), says that a basic digital central banking model (CBDC) must first be adopted and fully tested to minimize the impact on the country’s monetary policy and banking system. India’s Apex Bank sees several advantages in introducing a digital rupee, including “potential for increasing the efficiency of cross-border payments”.
RBI outlines the benefits of issuing digital currencies and adopting a CBDC with minimal impact
The Reserve Bank of India (RBI) published its “Report on Trend and Progress of Banking in India 2020-21” on Tuesday. The 248-page report includes a section on the central bank’s digital currency.
“A digital central bank currency (CBDC) in its basic form offers a secure, robust and convenient alternative to physical cash”, described the Indian central bank and added: “Depending on various design decisions, it can also take the complex form” of a financial instrument. “The RBI drove away:
Compared to existing forms of money, it can offer users advantages in terms of liquidity, scalability, acceptance, easy transactions with anonymity and faster processing.
The Central Bank of India noted that there were “crucial questions” about the design of a central bank digital currency that needed to be answered before it could be introduced. For example, one question is “whether the CBDC is available for general purpose and retail (CBDC-R) or whether it should be used for wholesale (CBDC-W).”
The RBI emphasized that “in a country like India, the decision on the distribution architecture, ie whether CBDC is issued directly by the central bank or through commercial banks, must be carefully considered.”
Apex Bank notes that assessing the size of the issuance and distribution will help “identify the appropriate underlying technology that is best suited to handling such operations,” said Apex Bank:
Given the dynamic impact on macroeconomic policy-making, it is necessary to first adopt and fully test basic models so that they have minimal impact on monetary policy and the banking system.
In discussing the role of a central bank digital currency in cross-border transactions, the RBI stated that “the introduction of the CBDC has the potential to increase the efficiency of cross-border payments and may represent an alternative to correspondent banks in the future.”
India’s advances in payment systems will provide a useful backbone to provide a cutting-edge CBDC to its citizens and financial institutions.
Meanwhile, RBI Governor Shaktikanta Das has repeatedly said that the central bank has serious and grave concerns about the cryptocurrency. At its most recent central board meeting, the RBI called on the Indian government to impose a total ban on cryptocurrency, stating that a partial ban would not work. Still, the government reportedly plans to regulate crypto assets with the Securities and Exchange Board of India (SEBI) as the main regulator.
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central bank digital currency, commercial banks, digital currency introduction, digital rupee, banking system impact, monetary policy impact, indian central bank, indian digital currency, rbi, rbi digital currency, reserve bank of india
What do you think of the RBI’s comments on CBDC? Let us know in the comment section below.
Kevin Helms
Kevin, a student of Austrian economics, found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economy and cryptography.
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