Today the Governor of the Reserve Bank of India, Shaktikanta Das, spoke to CNBC about its plans for a central bank digital currency (CBDC), saying it may be ready for digital rupee trials by the end of the year.
However, the bank is keen to tread cautiously to ensure it’s not possible to clone the digital currency and be careful about the impact on monetary policy and the banking system.
But it seems that many typical CBDC decisions still have to be made, and some of them are needed for trials. That includes whether the central bank should issue the digital currency directly or do so via commercial banks.
It hasn’t yet decided whether to start with a wholesale (bank-only) digital currency and progress to a mainstream retail CBDC. Or if it should instead begin with a retail CBDC in a localized area simultaneous to a wholesale CBDC.
The central bank also has yet to choose whether or not to use blockchain or distributed ledger technology (DLT) or use a centralized system.
Deputy Governor T Rabi Sankar also spoke on the topic recently. He outlined some of the key motivations for issuing a CBDC, including that there is still a very high proportion of cash used in the country that is expensive to administer. That’s despite India having advanced payment systems. However, if citizens are attracted to the anonymity of cash, a CBDC might struggle to gain traction.
Another motivator is concern about stablecoins and cryptocurrencies. Most stablecoins are denominated in U.S. dollars and the central bank is keen to retain a “public preference for the rupee”. On the topic of cryptocurrencies, the central bank Governor today said that it had communicated its concerns to the government about financial stability. “So the government will take the necessary policy decisions in that regard,” said Governor Das.
In other CBDC news this month, Jamaica minted its first batch of CBDC for a pilot. Two U.S. Federal Reserve Governors spoke about a digital dollar, with one supporting the concept and the other questioning the need. And the Bank of Ghana chose German central bank service provider G+D for its CBDC pilot, the second central bank to do so. The other was Thailand.