India is at the forefront among world countries when it comes to exploring the potential of CBDCs, also known as Central Bank Digital Currencies.
This interest in CBDCs has shone forth once again, considering the most recent reports from the Reserve Bank Of India (RBI).
According to reports, the RBI has been experimenting with CBDCs since December 2022, and the digital Rupee is about to get a shiny new look.
However, India also faces some unique challenges in terms of CBDC adoption, especially in rural and remote areas where internet connectivity is poor or non-existent. To overcome this hurdle, the RBI is planning to introduce offline functionality in its CBDC system, allowing users to transact with digital rupees without relying on the internet.
Considering India's status as a developing country, some rural and remote parts of the country have issues with successfully adopting and using CBDCs, because of issues like low or inexistent internet connectivity.
However, the RBI has stepped in to tackle these issues head-on, by introducing offline functionality to its CBDC system according to a recent release from the Press Trust of India.
This means that users of the digital Rupee will now be able to buy and sell goods and services with the CBDC, without having to rely on internet connectivity.
According to RBI Governor Shaktikanta Das, the Indian central bank is set to several alternatives, in a bid to arrive at this solution, including proximity and non-proximity-based solutions to enable CBDC transactions in places with low internet connectivity
According to Das, the CBDC test runs will progressively roll out the offline capabilities. At the moment, the pilots are concentrated on P2P (peer-to-peer) and P2M (peer-to-merchant) transactions using digital rupee wallets issued by participating banks.
He continued by saying that the ability of the CBDC system to be programmed, will also smart contracts and other cutting-edge features to be implemented.
The executive director of the RBI, Ajay Kumar Choudhary, was the first to suggest offline capability for CBDC transactions in March 2023.
According to him, the central bank is also testing CBDCs' cross-border and interoperability features as well as how effectively they integrate with other nations' older systems.
While the RBI is developing offline solutions for CBDCs, several of India's current payment platforms—like the well-known Unified Payments Interface (UPI)—already offer offline functionality to customers.
Users can send and receive money using their bank accounts and mobile phones using UPI, via QR codes and other technologies.
India's CBDC development has advanced significantly so far and holds a great deal of promise.
In December 2023, the country's pilot program even reached its goal of one million daily transactions, and a high-level interministerial committee has also been set up by the RBI to investigate the legal and regulatory elements of CBDCs as well as how they affect the Indian society, and the economy as a whole.
However, the CBDC scene isn't a bed of roses from all perspectives.
The public's lack of awareness, the resistance from India's cash-dependent population, and the potential threat to users' financial privacy are some of the obstacles India must overcome in order to fully implement CBDCs.
The RBI will need to mobilize all relevant parties, including the government, banks, retailers, payment service providers and customers, to lend a helping hand in order to overcome these obstacles.
In addition, the RBI must also ensure that the CBDC system does not destabilize the Indian rupee in any way and that it works in harmony with the current payment systems.
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