Central banks across the globe are engaged in exploring Central Bank Digital Currency (CBDCs), and a few countries have also introduced proofs of concept/pilots on CBDC. The high-level inter-ministerial committee (November 2017), constituted by the ministry of finance, to examine the policy and legal framework for the regulation of virtual or cryptocurrencies had recommended the introduction of CBDCs as a digital form of fiat money in India.
The Reserve Bank of India (RBI) is currently working towards a phased implementation strategy and examining use cases that could be implemented with little or no disruption.
Speaking at a webinar organised by the Vidhi Centre for Legal Policy, T Rabi Sankar, deputy governor, Reserve Bank of India, defined a CBDC as the legal tender issued by a central bank in a digital form.
It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different. "However, CBDC is not comparable to private virtual currencies," he said.
CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies that have mushroomed over the last decade. According to the RBI, private virtual currencies sit at substantial odds with the historical concept of money. They are not commodities or claims on commodities as they have no intrinsic value. "Some claims that they are akin to gold seem opportunistic. Usually, certainly for the most popular ones now, they do not represent any person's debt or liabilities," said Sankar.
Further, there is no issuer of private virtual currencies. RBI deputy governor emphasised that VCs are not money (certainly not currency) as the word has come to be understood historically.
Earlier in April, former MoS for finance and corporate affairs Anurag Thakur expressed concern over the volatile nature of cryptocurrency prices. But, that will not happen with CBDC.
CBDC, as per the RBI, could protect the public from the abnormal level of volatility some of the VCs experience. "Indeed, this could be the key factor nudging central banks from considering CBDCs as a secure and stable form of digital money," said RBI's deputy governor.
He added developing CBDC could provide the public with uses that any private VC can provide and, to that extent, might retain a public preference for the rupee as well.
There is a possibility of the central bank conducting pilots in wholesale and retail segments in near future.
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