RBI in talks with 4 banks, fintechs for digital currency launch this financial year

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By Suraj Bediya

The Reserve Bank of India (RBI) is in consultation with a number of fintech companies and is reported to have asked four public sector banks to run a pilot project for Central Bank Digital Currency (CBDC) in the coming fiscal year.

As part of this list, the US-based fintech company FIS has been holding roundtable conferences and workshops on CBDCs worldwide with central bankers.

According to Demidova, the fintech company advises central banks on CBDC topics such as offline payments, programmable payments, the new monetary policy toolkit, interest-bearing CBDC, fractional banking issues, financial inclusion, and cross-border CBDC payments.

Julia Demidova, senior director at FIS, told Moneycontrol, “FIS has had various engagements with the RBI…and, of course, our connected ecosystem could be extended to the RBI to experiment various CBDC options.”

“Whether it is a wholesale or retail CBDC transaction, our technology can also be extended to commercial banks where they can test and tokenise central bank money in the form of digital regulated money,” said Demidova.

CBDC is a currency that is backed by the regulator and stored in a digital format. Upon conversion into paper currency, it will appear on the RBI’s balance sheet, making it a legal tender.

The RBI could use blockchain technology to develop its CBDC, with adequate regulations, said the experts.

As well as, the RBI has roped in four state-run banks to run a pilot CBDC project, in according to two bank officials.

“The RBI has asked State Bank of India, Punjab National Bank, Union Bank of India and Bank of Baroda to run the pilot internally,” the official said, requesting anonymity.

Queries sent by Moneycontrol to the BoB, SBI, RBI and Union Bank for comments on the pilot CBDC project did not elicit a response by the time of publishing.

Another senior PSU bank official, however, confirmed the matter.

“There is a pilot on CBDCs. The RBI may come with the launch this year. When it will exactly roll out the product and specifications is to be seen,” said the banker.

“A partner and lead of financial services at EY, products like the Unified Payments Interface (UPI) gained momentum and have paved the way for the digital currency,” said Vikram Babbar.

While crypto currencies have been in use for some time globally, the risks associated with their usage, including anonymity and the lack of a central agency backing, have been at the forefront and have attracted more frauds and financial crime incidents recently, he said.

To mitigate some of the risks, central banks and regulators like the RBI have planned to launch a fiat digital currency, he added.

“From an Indian standpoint, CBDC would further support financial inclusion and at the same time ensure that the risk of fraud and money laundering is minimised. This would additionally entail setting up the right infrastructure and monitoring mechanisms before the formal launch. For a country like India, testing with a pilot launch and planning a phased implementation may be an apt start,” said Babbar.