The finance minister of India, Nirmala Sitharaman, during her budget speech earlier this year in February, announced plans to launch its digital Rupee for specific use cases soon.
To that end, India's central bank, the Reserve Bank of India (RBI), recently released a concept note on the Central Bank Digital Currency (CBDC).
A 51-page document, the concept note outlined the goals, choices, benefits, and dangers of implementing a CBDC in India. It also discussed crucial considerations such as technology and design choices, feasible uses of the digital Rupee, issuance mechanisms, etc. All of these have a direct implication for India's banking system and financial (in)stability.
The RBI said that the objective behind issuing the concept note is to generate awareness about CBDCs in general and the intended features of the digital Rupee.
"The note also seeks to explain Reserve Bank's approach towards the introduction of the CBDC," the central bank concluded in a statement.
The digital Rupee (or CBDC) of India will be a legal tender handed out by the RBI and will be viewed as identical to a supreme currency and is convertible one-to-one at equality with the fiat currency.
It will comply with RBI monetary policy and come into play as a liability in the central lender's balance sheet. CBDC is a fungible legal tender for which holders do not have to possess a bank account.
CBDC will be a fast and generally accepted means of payment, and a safe store value for all residents, companies, governments, and others, which can get it traded in cash.
Previously, the RBI had indicated skepticism about the preponderance of cryptocurrency. This was due to the risks it posed as regards money laundering and financing of terrorism. With CBDC, however, the public would be provided with a legitimately accepted digital currency.
Nonetheless, the RBI clarified that the digital Rupee "is substantially not different from banknotes, but being digital, it is likely to be easier, faster, and cheaper."
The CBDC will rely on various use cases and other technological alternatives, which must be verified.
The ultimate architecture is yet to be confirmed, according to reports. The RBI also "deliberates on the various aspects of technological choices available."
The digital Rupee will be launched in a phased manner with appropriately phased-out techniques. This suggests that the launch will develop sequentially via different levels of pilots, after which there will be a definitive launch.
Alongside that, there will be concurrent use cases that can be executed with little to no disturbance.
The RBI has also been examining the concept of "implementation of account-based CBDC in the wholesale segment and token-based CBDC in the retail segment via a graded approach." as another option.