The central bank, the Reserve Bank of India, has launched a pilot project on Central Bank Digital Currency (CDBC). The platform on which the pilot project has been launched is known as NDS-OM CDBC.
A pilot project refers to a small-scale project to understand the viability of an idea like the Digital Rupee. The objective of launching the wholesale digital rupee is to settle the secondary market transactions in government securities, as it can help reduce transaction costs in a great way.
The participants of the pilot project are nine popular banks of the country; they are- State Bank of India (SBI), Bank of Baroda (BoB), Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC Bank.
The central bank has proposed the launch of a pilot of the retail version in a time-frame of a month in selected locations consisting of closed user groups like customers and merchants. The central bank also published a 50-page concept note introducing CBDC in November.
In the pilot phase of the digital rupee launch, RBI will issue the digital currency to each bank’s CDBC account at regular intervals, said Dileep Seinberg, Founder & CEO of Muffin Pay.
He added, “The move must be lauded as it is turning the digital rupee into a reality and will require a robust cryptographic infrastructure based on sound blockchain technology.”
CDBC aims to complement the present forms of money. It does not aim to replace or reform the current payment methods. The digital rupee will act as an additional payment system for the users.
With the introduction of the digital rupee, India can have a significant role in framing global crypto regulation, especially when India takes over the G-20 group president once a year from December 1, 2022, to November 30, 2023.
In January, our Prime Minister Narendra Modi sought global cooperation to understand the challenges in cryptocurrencies, after which; our Finance Minister Nirmala Sitharaman has said that crypto will be a part of their plan.
In July, the Finance Minister mentioned that no legislation could happen without international collaboration. She also restated the RBIs known stance to the parliament that banned cryptos from avoiding a destabilizing effect on monetary and fiscal stability.
However, the Indian population will be thrilled to know that other than India, many other countries, like Australia, Israel, Norway, Sweden, etc., are looking for more opportunities in the space of the digital rupee.
CDBC is a kind of digital legal tender issued by the central bank. It resembles a fiat currency, the Indian National Rupee.
With the introduction of CDBC, the central banks can directly control the money supply. It will be an easier pathway to distribute government benefits to India’s citizens. It can also assist in monitoring transactions and enforcing tax laws.
According to Abhijit Shukla, CEO and Founder of Reality and Revolution Games, CDBC can be a great financial instrument to facilitate ease in a normal transaction, especially in the era of web 3.0. Fintech and crypto investments can be started. He also said that as CDBC is completely digital, it will not need the expensive and time-consuming reconciliation, which is inevitable in the case of cross-border payments and e-commerce.
CDBc is a digital currency but cannot resemble the private virtual currencies or cryptocurrencies because the Private crypto-assets do not represent an individual’s debt or liabilities as no issuer exists.
The CEO and Co-founder of DeFiVerse, Akshay Bajaj, said that CDBC is the first initiative of India in the Digital Finance category. Since the government is not completely convinced with cryptocurrencies, it is exploring new avenues around more controlled digital currencies to benefit the country and its citizens.
The Senior Vice-president, Strategy and Operations, Liminal, Manan Vora, said, “We strongly support RBI as it actively works towards making the digital rupee a reality.”
The digital rupee, other than being digital, is completely different from private cryptocurrencies as they will be monitored and controlled by the government. The digital rupee must be used according to the government rules too.
Since national security and financial stability are big questions with private cryptocurrencies, the RBI will never approve of them. Hence, cryptocurrencies can never be legal tender in India. However, the government is exploring digital currencies in the form of CDBC.
The central bank aims to facilitate a resilient environment for the CDBC infrastructure, which can enable it to operate around the clock with zero downtime. It will also help to protect the delicate and sensitive personal data of billions of users present on the platform.
Digital Rupee is an attempt by the Indian Government and the central bank to establish a controlled and regulated digital payment system that can benefit the government and the citizens of India.