RBI Deputy Governor T. Rabi Sankar said the central bank is working on a "phased implementation strategy" for introducing a central digital currency. Speaking at the virtual keynote address at the Vidhi Centre for Legal Policy on July 22, Sankar said, "RBI has been exploring the pros and cons of introduction of CBDCs since quite some time."
Central bank digital currencies (CBDCs) are legal tender that are created by the central bank of a nation, though in digital form. The only difference between them and traditional cash or fiat currency is that CBDCs are digital.
Unlike other cryptocurrencies that are DeFi or decentralised financial tokens, CBDCs will be backed by central reserves just like all other fiat currency. While CBDCs may not necessarily be the safe haven of wealth from inflation, they are not likely to ever experience market volatility unless the physical currency is undergoing the same.
"It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different," Sankar explained.
Sankar also said the Reserve Bank of India was looking at use cases for CBDCs that could be implemented with the least amount of disruption, or preferably none at all. India joins a growing list of nations that are increasingly keen on introducing their own digital currencies.
Sankar cited a BIS survey which found that 86 percent of central banks in the world are researching CBDCs and 60 percent are already experimenting with them. Some 14 percent of central banks already have CBDC pilot projects in their testing phase.
"Generally, countries have implemented specific-purpose CBDCs in the wholesale and retail segments. Going forward, after studying the impact of these models, launch of general purpose CBDCs shall be evaluated," Sankar said.
Countries are looking towards CBDCs for a few key advantages -- reduced printing costs, decreased settlement risks, avoidance of time zone issues, and cost-effective globalisation of payment systems.
Another important factor about the growing interest of central banks towards CBDC, according to Sankar, is to wean away citizens from private virtual currencies that may potentially harm them.
"Every idea has to wait for its time. Perhaps the time for CBDC is nigh," Sankar said.
(Edited by : Shoma Bhattacharjee)