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Central bank digital currency pilot launch by Q1 next year: RBI official

Central bank digital currency pilot launch by Q1 next year: RBI official

Central bank digital currency pilot launch by Q1 next year: RBI official
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By Ritu Singh  Nov 17, 2021 8:35:18 PM IST (Updated)

A CBDC is legal tender issued by a central bank, but in a digital form.

The Reserve Bank of India is set to launch the pilot for its proposed central bank digital currency or CDBC by the first quarter of next year, a senior RBI official told CNBC-TV18 during a panel discussion at State Bank of India’s annual Banking & Economic Conclave on Wednesday,

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When asked how soon India could have its CBDC, P Vasudevan, the Chief General Manager of RBI’s Department of Payment and Settlement, said, “I think somewhere it was said that at least by the first quarter of next year a pilot could be launched.” “We are on the job and we are looking into the various nuances related to the CBDC. It’s not a simple thing to just say that CBDC can be a habit from tomorrow…We have to be very cautious, and see whether it should be as a wholesale segment or target the retail segment, and for what purpose as well,” Vasudevan said.
He added that the central bank would have to work out how the validation mechanism for a CBDC would be implemented as it would be token based.
“The banking system has been taking the lead in terms of currency distribution as a tiered model…whether the same model can be accepted for CBDC as well, we will have to see,” he said.
Vasudevan said that the RBI is also checking if intermediaries can be bypassed altogether, and whether the technology would be decentralised or semi-centralised. While work is on to ensure the launch of the CBDC soon, the central bank is still deliberating the finer print. “We are bullish on it,” Vasudevan added, saying that banks would be involved in the CBDC pilot when it is launched.
A CBDC is legal tender issued by a central bank, but 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.
“It is also important to understand what a CBDC is not. CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies that have mushroomed over the last decade. Private virtual currencies sit at substantial odds to 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 clearly seem opportunistic. Usually, certainly for the most popular ones now, they do not represent any person’s debt or liabilities. There is no ISSUER. They are not money (certainly not CURRENCY) as the word has come to be understood historically,” RBI Deputy Governor T Rabi Sankar had remarked on the matter earlier in July while delivering a lecture at the Vidhi Centre for Legal Policy.
Other panelist’s concurred. “Nine out of ten central banks are in the process of issuing CDBCs, and that might be a good way for India to play in this space… It can be a catalyst to financial inclusion. It can be an opportunity to see how you reduce cost of cash,” said Joydeep Sengupta, Senior Partner at McKinsey & Company.
On the subject of private digital currencies, other speakers part of the panel discussion were split. While HDFC Bank’s Country head for payments, technology and digital banking- Parag Rao- called cryptos a “fad” which was seeing values go up “based on, say, corporate superstars’ comments”, SBI’s Managing Director for international banking, technology and subsidiaries- Ashwini Kumar Tewari said that one would have to take a more “nuanced view”, instead of completely banning cryptos.
“It no longer can be ignored. The value of crypto today is roughly USD3 trillion and growing as we speak,” added Joydeep Sengupta of McKinsey.
“It is a speculation-led investment or asset class. Because everyone thinks the next crypto can be a Bitcoin and it can have USD 50,000 value and it is becoming like a penny stock,” said Deepak Sharma, Chief Digital Officer at Kotak Mahindra Bank. “How would the end use of digital currencies be? Its purpose, storage, movement will continue to be a big question, I don’t have an answer to that.”
“I think a deeper conversation needs to take place, not only in committees but also in public domain. So the concerns which are there and which have been articulated over time- whether the control over the cryptocurrencies or even money itself could be lost, money laundering concerns, all of these concerns are valid concerns. Does this mean we totally ban crypto? I think there can be a nuanced view here. Control is essential,” Ashwini Tewari, MD of SBI said.
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