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RBI Releases Concept Note on Central Bank Digital Currency

The Reserve Bank of India (“RBI”) on October 7, 2022 announced that it will soon commence the pilot launch of e-rupee for specific use cases and has additionally released a concept note on Central Bank Digital Currency (“CBDC”) to create awareness amongst the general public regarding the use of such currencies and the features associates therewith. 

Officials from the RBI have shared that, ‘The e-rupee will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper. It also has all the transactional benefits of other forms of digital money.’

The concept note discusses key considerations such as technology and design choices, possible uses for digital rupee, mechanism for issuance, etc. It has additionally examined the impacts of the introduction of CBDC on the banking system, monetary policy, financial stability, and further analyses privacy concerns. RBI has broadly defined CBDC as the legal tender issued by a central bank in a digital format. Further, they have compared it to sovereign paper currency that takes a different form, exchangeable at par with the existing currency and shall be accepted as a medium of payment, legal tender and a safe store of value. The Finance Minister, Ms. Nirmala Seetharaman, in her introduction to the Union Budget for 2022-23 had announced that the central bank will roll out a digital equivalent to the rupee in the current financial year itself.

This has come in the wake of the central bank vehemently opposing operation of all cryptocurrencies and had expressed grave concerns regarding their misuse for illegal acts, among others. However, the RBI believes CBDC to be a perfect counter for a nation that does not wish to let non-sovereign bodies to regulate the sphere of currency and minting. The RBI states that CBDC, on account of being a sovereign currency, holds unique advantages of money issued by the central bank, such as trust, safety, liquidity, settlement finality and integrity.

The recent innovations in the technology-based payments solutions have led global central banks to explore the potential benefits and risks of issuing a CBDC so as to maintain the continuum with the current trends of development and innovation. As regards the implications of CBDC on liquidity management, the central bank believes that the change in the form of the currency, from physical to digital may bring about a change in the behaviour of usage by members of the general public holding physical money.

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