India – the world’s most populous country and a start-up hub – is likely to start its official central bank-backed digital currency (CBDC) soon.
“RBI is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption,” RBI Deputy Governor T Rabi Sankar said on Thursday.
The reason behind the phased introduction has been that it will need legal changes to be made in the nation’s foreign-exchange rules and information-technology laws.
He added that the idea of CBDC is ripe, and many central banks in the world are working towards it.
The central bank’s deputy governor’s speech comes just days after the European Central Bank took a major step towards the rollout of ‘digital euro’, approving an “investigation phase" which could ultimately lead to a virtual currency being implemented by 2025. The next stage, which will last 24 months, aims to address key issues on design and distribution, the ECB said.
Globally, major central banks are following in the footsteps of China, where digital currency trials have started in several cities. Eastern Caribbean islands that share a central bank, including Grenada and St. Kitts and Nevis, have already launched their own versions. The US Federal Reserve and the Bank of England as well, are looking into the possibilities of having their own digital cryptocurrencies.
Earlier this year, in its annual Report on Currency and Finance, India’s Reserve Bank said that CBDC could be designed to promote non-anonymity of monetary transactions and financial inclusion by direct transfers. This is likely to allay the fears of policymakers that the cryptocurrencies could be used as tool of money laundering.
The RBI is of the opinion that CBDCs will lead to reduction in the transaction demand for bank deposits. “Since transactions in CBDCs reduce settlement risk as well, they reduce the liquidity needs for settlement of transactions (such as intra-day liquidity). In addition, by providing a genuinely risk-free alternative to bank deposits, they could cause a shift away from bank deposits which in turn might reduce the need for government guarantees on deposits,” he said.
Meanwhile, after yesterday’s rally in the prices of Bitcoin and other cryptocurrencies, they are back in the red, with losses ranging up to 6.5%.