RBI's model on India's digital currency could come out by 2021-end

The Reserve Bank of India (RBI) on Friday said it may come out with a model of central bank digital currency (CBDC) as early as the end of this year. 

Speaking at the post monetary policy press meet, deputy governor, T Rabi Sankar said, “We are internally evaluating issues such as the scope, technology, distribution mechanism, and validation mechanism, etc."

“These are extremely involving technology and business choices that one has to make. So, it will be difficult to pin a date on it (central bank digital currency) but we should be able to come out with a model in the near future, probably by the end of this year," he said. 

Earlier, the deputy governor had said that the RBI will introduce its own version of CBDC in a phased manner after carefully weighing its impact on various issues, including how it could hamper the deposit mobilisation abilities of banks, and its potential effect on the conduct of the monetary policy. However, he had mentioned that conducting pilots in wholesale and retail segments may be a possibility in near future. 

Many central banks of the major economies are also exploring the possibility of introducing a central bank digital currency. A CBDC is essentially a virtual currency but it is issued by the central bank and has a sovereign backing, unlike other virtual currencies. 

The issue of CBDC has crept up in the last few years with the advent of private virtual currencies, such as bitcoins. While these private currencies have their own benefits, they are not backed by any government and therefore do not follow any proper jurisdiction. The wide adoption of these currencies threatens to upend the established model of fiat currencies issued by countries within a border.

In an interview with Business Standard, RBI governor, Shaktikanta Das, had said that CBDC is something that has implications on monetary and overall savings. 

In the speech he gave last month, Sankar had said if the virtual currencies gain recognition “national currencies with limited convertibility are likely to come under threat". 

While the RBI is working towards bringing out a CBDC, they have serious apprehensions when it comes to private virtual currencies. The RBI has made its stance clear on cryptocurrencies, saying it has major concerns around such assets, reiterating its long-standing position on the use of virtual currencies. On Friday again, the governor of RBI reiterated the central banks' stance on such assets. He said the RBI has conveyed its position on such assets to the government. 

The central bank, in its circular on April 6, 2018, had prohibited banks from dealing in cryptocurrencies or offering any service to customers on them. The circular was challenged in the Supreme Court, which set aside the rules on March 4, 2020.