The Reserve Bank of India presents its concept of a digital rupee, considering its design, issuance, and effects on the current banking system. RBI claims that its envisioned version of a CBDC could be a better alternative to privately issued cryptocurrencies and FinTech applications.
In a recent report, the RBI’s FinTech Department confirmed that it is looking at both a retail CBDC for consumers and businesses and a wholesale CBDC designed to streamline interbank transfers and other wholesale transfers.
RBI working towards a phased approach
The RBI has formed an internal working group to make recommendations on the CBDC’s design and testing. Each pilot for the retail and wholesale CBDCs will start by building the currency with technology partners based on recommendations from the working group. After that, the CBDCs will be tested in a sandbox environment to evaluate their design and functionality. Next, the RBI will test their resilience by exposing them to various stressful scenarios and then assess the results. If the test outcomes are met, the RBI will launch a pilot with as broad a demographic as possible. Lessons learned from the pilot will be included in the CBDCs’ final design.
In developing the retail CBDC, the bank aims to make it more like physical banknotes where the holder is presumed to be the owner. In developing the wholesale CBDC, the bank will likely employ an account-based system where owners are identified by transaction records rather than possessing digital tokens. The bank hopes to create a trusted system immune to fake tokens and double-spending.
Notably, the bank does not see distributed ledger technology (DLT) used by blockchains as capable of providing the required transaction throughput for large jurisdictions. Instead, it sees DLT as playing a role in a hybridized CBDC architecture with both centralized and decentralized elements.
Replacement for private cryptocurrencies
While the Indian government has not chosen to ban crypto but instead pose hefty taxes on gains, the flavor of the RBI report suggests an aversion to the asset class.
“The inherent design of cryptocurrencies is more geared to bypass the established and regulated intermediation and control arrangements that play a crucial role of ensuring integrity and stability of monetary and financial eco-system.” - Reserve Bank of India
One Twitter user said that the crypto industry would likely suffer when the RBI introduces the CBDCs. Other users also slammed the report, with some suggesting that CBDCs take the country one step closer to a surveillance state.
Don't trust RBI, transactions will be tracked in real time.
— Debanjan Biswas (@bdebanjan5) October 7, 2022
The report provides no planned date for the launch of the CBDCs. Still, it emphasizes the importance of continued research and collaboration with international bodies like the World Economic Forum, the International Monetary Fund, and the Bank For International Settlements.
