CBDC a safer alternative to private digital currencies

• RBI is working on making the CBDCs transferable in offline mode as well.

Central Bank Digital Currency (CBDC) or digital currency can drive financial inclusion and provide a much safer alternative to potentially dangerous private digital currencies, Reserve Bank of India Governor Shaktikanta Das said.

Private digital currencies, commonly known as cryptocurrency, are currently unregulated in India. The Indian government does not register crypto exchanges and it maintains crypto assets, which, by definition, are borderless and require “international collaboration.”

“CBDC can provide a much safer alternative to private digital currencies, which, according to us, are potentially dangerous,” Governor Das said at the BIS Innovation Summit 2024.

In the context of cross-border payments, Governor Das said that the feature of settlement finality can substantially reduce the cost of transactions.

CBDC, with its unique technology, has transformative potential, Das asserted, as he outlined the three key features – anonymity, ease of usage, and finality of settlements.

India has adopted a phased implementation of CBDCs. The digital currency was launched in India on a pilot basis, both in the wholesale and retail categories, in November-December 2022.

“Going forward, the advantages of CBDCs will be more visible when we enable offline use and programmability features,” the RBI governor said.

“A key objective of the pilots has been to study the change in consumer behaviour vis-a-vis bank deposits. We need many more transactions to understand its wider economic effects, especially on monetary policy and the banking system.”

“So far, we have gained significant insights from the two pilots – wholesale and retail – on various aspects, such as design, technology, and user behaviour. These insights are facilitating the scalability, resilience, and agility of the CBDCs. The pilots are also enabling us to make informed decisions, like positioning the CBDC alongside the UPI.”

Das further said the RBI is working on making the CBDCs transferable in offline mode as well.

Among key learnings so far from the CBDC pilot, Das said it has similar denominations to that of hard currency, which makes it easier for users to relate to CBDCs as a digital form of cash. It also offers a similar degree of anonymity to that of hard cash.

Earlier this year at WEF Davos, the RBI governor said the countrywide launch of CBDC will depend on the success, the learnings, and the fine-tuning of the pilot version.