The Reserve Bank of India (RBI) intends to implement India’s own Central Bank Digital Currency (CBDC) in a staggered manner. CBDC seeks to put an end to the damaging results of private virtual currencies; it might also have an impact on bank deposits. The Deputy Governor of RBI believes that with the arrival of private virtual currencies, the CBDC introduction has become a necessity.
RBI CBDC Plan aims to create a more efficient, robust, regulated, trusted, and legitimate tender-based payments option. Currently, RBI is exploring the scope of CBDCs, the primary technology, distribution architecture, validation mechanism, degree of anonymity, etc. Nevertheless, organising pilots in wholesale and retail sectors may be possible soon.
As per RBI, CBDC will benefit in several ways, such as less dependency on cash, higher seigniorage because of lower transaction costs, and minimal settlement risk. CBDCs might also enable more cost-effective and real-time globalisation of payment systems. As per RBI, the impact of CBDC on bank deposits may be limited as CBDC is a currency that doesn’t pay interest.
According to the RBI, CBDC may have minimal impact on private digital currencies such as Matic, Bitcoin, Doge, etc. The virtual currencies are based on ‘decentralisation’. On the other hand, sovereign digital currencies are in contrast to decentralisation since the central banks control and govern them.
Any digital currency backed by the RBI will come with more security and less volatility for the bearer of the same. This will be different from the cryptocurrencies such as Bitcoin, Doge, etc., which are popular indeed but come with various risks. When the RBI renders support for a digital currency, its financial stability will be assured.
With time, as CBDCs gain more adoption, people might get to know more about private cryptocurrencies. CBDCs might act as a catalyst indirectly in generating awareness concerning the practical usage of cryptocurrencies. This is when crypto markets also might get increased retail participation.
For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in
Bhavana is a Senior Content Writer handling the GST vertical. She is committed, professional, and has a flair for writing. When away from work, she enjoys watching movies and playing with her son. One thing she can’t resist is SHOPPING! Her favourite quote is: “Luck is what happens when preparation meets opportunity”.
