The Reserve Bank of India (RBI) issued a concept note on Central Bank Digital Currency (CBDC) in Oct 2022.
The primary drivers behind India’s exploration of issuing a Central Bank Digital Currency (CBDC) are as follows:
- Cost Reduction: By adopting CBDC, India aims to decrease the operational expenses associated with managing physical cash.
- Financial Inclusion: CBDC can play a crucial role in promoting financial inclusion, making financial services more accessible to all segments of the population.
- Payments System Innovation: CBDC is expected to introduce resilience, efficiency, and innovation in the country’s payment systems.
- Settlement System Efficiency: CBDC will enhance the efficiency of settlement systems by enabling transactions in central bank money, thereby reducing transaction costs and eliminating the need for settlement guarantee infrastructure.
- Cross-Border Payments Innovation: CBDC could facilitate innovative solutions in cross-border payments, improving the overall efficiency of international transactions.
- Benefits over Private Virtual Currencies: CBDC will offer the public functionalities similar to private virtual currencies without exposing users to the associated risks.
Additionally, the use of the offline feature in CBDC will bring advantages in remote areas, providing availability and resilience benefits when there is no electrical power or mobile network.
The Reserve Bank of India (RBI) has initiated pilot projects for CBDC in both Wholesale and Retail segments:
- Wholesale Segment (e₹-W): Launched on November 1, 2022, this pilot focuses on using CBDC for settling secondary market transactions in government securities, making the inter-bank market more efficient.
- Retail Segment (e₹-R): Introduced on December 01, 2022, within a closed user group (CUG) comprising customers and merchants. This pilot involves eight banks in two phases, allowing users to transact through a digital wallet provided by the participating banks. Transactions can be both Person to Person (P2P) and Person to Merchant (P2M), providing features like trust, safety, and settlement finality similar to physical cash.
The RBI aims to conduct at least one million CBDC transactions per day by the end of 2023, as announced by the Deputy Governor in July 2023. As of June 2023, the pilot for retail CBDC transactions has already surpassed one million users and 262,000 merchants.
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