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HIGHLIGHTS
- RBI governor Shaktikanta Das has said India may launch CBDC by end of 2021
- The design of India’s CBDC and the technology that will underpin is a subject of speculation
- India’s CBDC is likely to be a digital rupee, similar to the digital yuan pilot project in China
India could launch its central bank digital currency (CBDC) trial by December this year, the country’s central bank governor, Shaktikanta Das, has said. In a video interview, he added said that the Reserve Bank of India (RBI) will tread cautiously on this project.
What does this development means?
This necessarily means that the emerging economy of India is contemplating a dive into digital currency world. However, this does not mean that the characteristics of its CBDC will resemble cryptocurrencies like Bitcoin and Ether.
It is important to read between the lines. Mr Das has said that the bank is yet to finalize whether the CBDC will use the distributed ledger technology, which underpins cryptocurrencies. He has not rejected using a centralized database. The difference is that with a centralized ledger, the RBI will retain complete control over issuance and subsequent aspects of CBDC.
Also read: Is Canada working on its own CBDC?
Is it CBDC or a digital rupee?
It might be too early to comment on this. Moreover, central banks around the world have yet to reach a consensus on any particular form of CBDCs. The Bank of Canada is working with three universities to arrive at any conclusion. The US Federal Reserve too has not talked about any specific design.
A clue may lie in China’s digital yuan pilot project. Media outlets have reported it as a launch of CBDC by China. In reality, it involves issuance of digital form of yuan by the People’s Bank of China (PBOC). PBOC issued digital yuan to commercial banks in China and these banks passed them on to select clients. The use is limited to a few Chinese cities. The role of distributed ledger tech is yet unknown.
Also read: Blockchain, cryptocurrencies, NFT & CBDC: Difference explained in 4 paras
Image: Pixabay
What’s the progress in developed countries?
Developed countries including the US, the UK and Canada have yet to announce any date when CBDCs will be launched by their respective central banks. The Fed and central banks of the UK and Canada are said to be working on the concept, but unlike India, there is no clear sign of any looming launch.
The reason is that all these central banks are presently preoccupied by the economic downturn brought by the COVID-19 pandemic. The Fed is busy contemplating whether or not to taper bond purchases and hike interest rates. Macroeconomic indicators are weak and the revival of the pandemic is not letting central banks to devote much time to CBDC projects.
Also read: How are low interest rates helping Canada & US?
Road Ahead
The announcement came from India’s central bank governor in a video interview with a news outlet. It is also to be noted that Mr Das only sounded optimistic about a probable launch of CBDC. The key points are that neither did he disclose any specific design of the CBDC nor was he yet sure how the launch of digital rupee would impact India’s monetary policy. India is reeling from same weak macroeconomic indicators and there is little room for any big-ticket experiments.
India’s CBDC space is likely to remain a breeding ground of speculation at least until the RBI comes out with more details on the project
