Developing domestic Central Bank Digital Currencies could provide the public with uses that any private virtual currency offers and to that extent might retain public preference for the rupee
Two types of Central Bank Digital Currencies (CBDC) is what the Reserve Bank of India (RBI) is working on, one for wholesale accounts and retail, and plans to put on pilot whichever is completed first.
“A lot of work has been done on wholesale based CBDC while retail is somewhat complicated and will take more time. We will release a pilot, whichever is ready first”, said T Rabi Sankar, Deputy Governor of RBI, in a post monetary policy press conference.
This will be an electronic version of the paper currency and the major risk associated with is digital fraud, which needs to be addressed through robust systems, said the Deputy Governor.
“The main concern comes from the angle of cyber-security and the possibility of digital frauds. So we have to be careful about that, like a few years ago we had major concerns about fake currency. There will be attempts so we need to have robust systems to add firewalls to prevent such things from happening”, said Shaktikanta Das, Governor of RBI.
Issued by the Central Bank, Central Bank Digital Currencies are a legal tender in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency.
Developing domestic Central Bank Digital Currencies could provide the public with uses that any private virtual currency offers and to that extent might retain public preference for the rupee, said Rabi Sankar earlier this year.
“It could also protect the public from the abnormal level of volatility some of these VCs experience’, he had said.
The introduction of Central Bank Digital Currencies, he said, has the potential to provide significant benefits such as reduced dependency on cash, higher seignior-age due to lower transaction costs and reduced settlement risk.
“Introduction of Central Bank Digital Currencies would possible lead to a more robust, efficient, trusted, regulated and legal tender-based payments option. There are associated risks, no doubt, but they need to be carefully evaluated against the potential benefits”, he said.
The Deputy Governor said it would be RBI’s endeavour, “as we move forward in the direction of India’s Central Bank Digital Currencies”, to take the necessary steps which would reiterate the leadership position of the country in payment systems.
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