RBI introduces CBDC pilot project; crypto industry gives a thumbs up

The Reserve Bank of India (RBI) on Tuesday launched a pilot project on central bank digital currency (CBDC). The platform is called NDS-OM CBDC.

In a statement, the RBI said the use case for the wholesale digital rupee is the settlement of secondary market transactions in government securities because it would reduce transaction costs.

Nine prominent banks namely –

, , , , , , , and HSBC –have been identified for participation in the pilot.

The RBI said a pilot of the retail version is planned for launch within a month in select locations in closed user groups comprising customers and merchants. It published a 50-page concept note for the introduction of CBDC earlier this month.

Dileep Seinberg, Founder & CEO, MuffinPay said the pilot project on a retail version of the digital rupee will be launched in a month. “In the pilot phase, RBI will issue the digital currency to each bank’s CBDC account at regular intervals.”

The CBDC is aimed to complement, rather than replace, current forms of money and is envisaged to provide an additional payment avenue to users, not to replace the existing payment systems, he added. “The move must be lauded as it is turning digital rupee into a reality and will require a robust cryptographic infrastructure based on sound blockchain technology.”

India will have a prominent role in framing global crypto regulation when it takes over the G-20 group presidency for one year, starting from December 1, 2022, till November 30, 2023.

Union Finance Minister Nirmala Sitharaman has said crypto will be part of the agenda. In January, Prime Minister Narendra Modi sought global cooperation to tackle the challenges posed by cryptocurrencies.

Later in July, the Finance Minister said no legislation is possible without significant international collaboration while re-stating the RBI’s known stance to parliament – ban cryptos to avoid a destabilising effect on monetary and fiscal stability.

Not only India, a number of central banks from Australia, Israel, Norway, Sweden and more are exploring opportunities in the CBDC space.

Central Bank Digital Currency (CBDC) is a digital form of legal tender issued by the Reserve Bank, which is a form of fiat currency, that is, the Indian National Rupee.

CBDC offers central banks direct control over the money supply, making it easier to distribute government benefits to citizens and to better monitor transactions to enforce tax laws.

Abhijit Shukla, CEO & Founder of Tarality & Revolution Games, said CBDC can create ease in the normal transaction most importantly the Era of web3.0 fintech can be started as well as investment in crypto.

“Since CBDC is entirely digital, it does not need the expensive and time-consuming reconciliation that cross-border payments and e-commerce currently require,” he added.

CBDC is a digital or virtual currency, but it is not comparable to the private virtual currencies or cryptocurrencies. Private crypto assets do not represent any person’s debt or liabilities as no issuer exists.

This could represent the first movement into the digital finance space by India, said Akshay Bajaj, CEO and Co-Founder, DeFiVerse. “The government is still wary of cryptos, it seems to be exploring CBDCs as a more controlled currency choice.”

CBDCs are very different from currencies, except for the digital aspect all features are different, he said. “CBDCs are controlled by the government and will be used as per the government’s rules.”

The government has already said private cryptocurrencies will never be a legal tender. The RBI has been strongly opposing private cryptocurrencies as they could have implications on national security and financial stability.

Manan Vora, Senior Vice-president- Strategy and Operations, Liminal, said, “We strongly support RBI as it actively works towards making the digital rupee a reality.”

The CBDC infrastructure should be a resilient environment that can operate 24×7 with zero downtime and at the same time protect the sensitive personal data of billions of users on its platform, he added.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)