RBI: RBI working on digital currency, pilot projects likely in near future: Dy Guv

A CBDC is a legal tender issued by a central bank in digital form. It is like a fiat currency and can be exchanged 1-1 with fiat money.

Sankar said the development of a CBDC in the country could provide the public with the uses that any private virtual currency (VC) offers, and to that extent could sustain the public’s preference for it. with rupees.

“It could also protect the public from the unusual level of volatility experienced by some of these VCs,” he said while participating in an online discussion hosted by The. Vidhi Legal Policy Center.

He said the introduction of CBDCs has the potential to offer significant benefits such as reduced reliance on cash, higher storage rates due to lower transaction costs and reduced payment risks.

“The introduction of a CBDC will likely lead to a more robust, efficient, reliable, regulated and legal tender-based payment option,” he said.

The deputy governor said it will be an effort by the RBI, “as we move forward in the direction of India’s CBDC”, to take the necessary steps to assert the country’s leadership position in the payment system. maths.

He said CBDCs are likely to be in every central bank’s arsenal in the future. Establishing this will require careful calibration and a nuanced approach to implementation.

Sankar emphasizes that drawing board considerations and stakeholder considerations are important, while technological challenges must also be considered.

“The RBI is currently working towards a phased rollout strategy and test use cases that can be done with little or no disruption,” he said.

Some of the key issues examined by the RBI include, the scope of the CBDC, the underlying technology, the validation mechanism, and the distribution architecture.

“However, piloting the wholesale and retail segments may be a possibility in the near future,” the deputy governor said.

Sankar added that regulatory changes will be necessary as existing regulations have been made to take note of the currency in physical form. Reserve Bank of India Act.

He said amendments would therefore also be required in the Coinage Act, the Foreign Exchange Management Act (FEMA) and the Information Technology Act.

“Like I said, every idea will have to wait for its time. Perhaps the time of CBDCs is near,” he commented.

He also highlighted some of the risks associated with digital currencies, such as money suddenly flying out of a stressed bank.

“There are risks involved … but they need to be carefully assessed against the potential benefits,” he added.

The Ministry of Finance, in 2017, established a high-level inter-ministerial committee to examine the policy and regulatory framework for the regulation of virtual currencies/cryptocurrency. It has recommended introducing CBDC as a digital form of fiat money in India.

The RBI has also been exploring the pros and cons of introducing CBDCs for quite some time now.