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India’s central bank RBI discusses the introduction of digital currency and CBDC with minimal impact on monetary policy regulation

India’s central bank, the Reserve Bank of India (RBI), says that a basic digital central banking model (CBDC) must first be adopted and fully tested to minimize the impact on the country’s monetary policy and banking system. India’s Apex Bank sees several advantages in introducing a digital rupee, including “potential for increasing the efficiency of cross-border payments”.

RBI outlines the benefits of issuing digital currencies and adopting a CBDC with minimal impact

The Reserve Bank of India (RBI) published its “Report on Trend and Progress of Banking in India 2020-21” on Tuesday. The 248-page report includes a section on the central bank’s digital currency.

“A digital central bank currency (CBDC) in its basic form represents a safe, robust and convenient alternative to physical cash,” described the Indian central bank and added: “Depending on various design decisions, it can also take the complex form” of a financial instrument. “The RBI continued:

Compared to existing forms of money, it can offer users advantages in terms of liquidity, scalability, acceptance, easy transactions with anonymity and faster processing.

The Central Bank of India noted that there were “crucial questions” about the design of a central bank digital currency that needed to be answered before it could be introduced. For example, one question is “whether the CBDC is available for general purpose and retail (CBDC-R) or whether it should be used for wholesale (CBDC-W).”

The RBI emphasized that “in a country like India, the decision on the distribution architecture, ie whether CBDC is issued directly by the central bank or through commercial banks, must be carefully considered.”

Apex-Bank advises that assessing the size of the issue and distribution will help “identify the appropriate underlying technology that is best suited to handling such operations,” said Apex-Bank:

Given their dynamic impact on macroeconomic policy making, it is necessary to first adopt and fully test basic models so that they have minimal impact on monetary policy and the banking system.

In discussing the role of a central bank digital currency in cross-border transactions, the RBI stated that “the introduction of the CBDC has the potential to increase the efficiency of cross-border payments and may represent an alternative to correspondent banks in the future.”

India’s advances in payment systems will provide a useful backbone to provide a cutting-edge CBDC to its citizens and financial institutions.

Meanwhile, RBI Governor Shaktikanta Das has repeatedly said that the central bank serious and great concern on the subject of cryptocurrency. At its most recent Board of Directors meeting, the RBI urged the Indian government to do a complete ban on cryptocurrency stating a partial ban won’t work. Nonetheless, the government is reportedly planning to regulate Crypto Assets with the Securities and Exchange Board of India (SEBI) as the primary regulator.

What do you think of the RBI’s comments on CBDC? Let us know in the comment section below.

Kevin Helms

Kevin, a student of Austrian economics, found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economy and cryptography.




Photo credits: Shutterstock, Pixabay, Wiki Commons


Source: Crypto News Austria

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