Monetary policy: RBI cautious on CBDC; cap on e-RUPI vouchers at Rs 1L

In line with the Budget announcement, RBI governor Shaktikanta Das said that central bank digital currency (CBDC) will be launched in the next fiscal year

In line with the Budget announcement, Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday said that central bank digital currency (CBDC) will be launched in the next fiscal year (FY23) but refrained from giving a specific timeline for the same. Once the government amends the RBI Act to enable issuance of CBDC, the central bank will carry out pilots for the same.

In the post-policy meeting with the media, Das said, “We should not hurry hence we are proceeding carefully and cautiously given the risks associated such as cyber security. This is a new product and all global central banks are proceeding very cautiously”.

Finance Minister Nirmala Sitharaman announced in the Union Budget speech this year that a digital rupee, using blockchain and other technologies, will be issued by the RBI in FY23, to give a boost to the digital economy. The government has also sought to amend Section 2 and 22 of the RBI Act, 1934, for clarity that CBDC should also be regarded as bank notes.

“We have been working on a CBDC or digital rupee for the last 18–24 months. This year’s budget has proposed that the RBI Act will be amended to enable issuance of CBDCs. Once that is done, we can try out the pilots and proof of concepts”, said T Rabi Sankar, the deputy governor, RBI.

In the last monetary policy meeting, Sankar had informed that the RBI was working on two types of CBDC – one based on wholesale account and the other on retail. On Thursday, Sankar reiterated that they were working on both the models. “There is relative ease in developing an account-based model while a token-based model will take a bit of time. Going forward we will decide which model we will test first”, he said.

Speaking about the kind of technology that will be used, Sankar said, “We are open to trying out all technological choices, it depends on the use cases which technology will be more appropriate. It’s not one or the other. It will probably be whatever suits the case best”.

A CBDC is a virtual currency issued by the central bank, and unlike other virtual currencies, has a sovereign backing. “The digital rupee is similar in character to the normal rupee, it is one to one convertible like the normal rupee, just that it will be in a digital format. The digital rupee will be issued by the RBI and it will be a liability of the RBI”, said Sankar.

Experts have said a CBDC will minimise depositors’ exposure to their bank and will also reduce the risk of settlement default for institutions as well. Further, CBDCs have the potential to bring down the costs of making cross-border payments.

e-RUPI cap enhancement

RBI also proposed to increase the cap on the amount for e-RUPI vouchers to Rs 100,000 from Rs 10,000 currently to enhance the scope of application of these vouchers and facilitate faster delivery of various government services to beneficiaries. Further, it said that e-RUPI vouchers can be used multiple times, until the amount on the voucher is completely redeemed.

“This will further facilitate the deli­very of various government schemes to the beneficiaries more efficiently”, Governor Das said in his statement.

Launched in August 2021, e-RUPI is currently a one-time use digital solution to facilitate cashless payment, which is person- and purpose-specific for various services like Covid vaccine, donations, corporate gift vouchers, among others.

“It appears that the purpose is to address some practical issues with the lower current cap, and to broaden the applicability to a much larger set of use-cases which can involve amounts all the way up to Rs 100,000”, said Harish Prasad, the head of banking, India, FIS.

The expansion of e-RUPI acceptance also has a potential to make inroads into certain areas addressed by gift-cards, Prasad said, adding that it would be interesting to watch out for a possible link between the proposed Digital Rupee and the e-RUPI programmes.