The making of digital rupee: A deep dive into RBI's concept note

Central banks across the globe are exploring the possibility of issuing digital currency. The motivations for such an initiative vary from one country to another depending on their priorities. Business Standard takes a deep dive into the RBI's concept note, which promises "easier, faster, and cheaper” digital currency or digital rupee.

Some features of CBDCs*

• A sovereign currency issued by central banks in alignment with their monetary policy
• Appears as a liability on the central bank’s balance sheet

Must be accepted
 

i) as a medium of payment

ii) as a legal tender

iii) as a safe store of value by all citizens, enterprises, and government agencies

• Freely convertible against commercial bank money and cash
• Fungible legal tender for which holders need not have a bank account
• Expected to lower the cost of issuance of money and transactions

The Global Scene in Numbers

• 60 number of central banks expressed interest in CBDCs, with a few of them implementing pilot
• 10 number of countries already launched CBDC
• 105 numbers of countries, which cover 95% of global GDP, are in the process of exploring CBDCs
• Jamaica’s JAM-DEX is the latest CBDC launch
• Countries, including China & South Korea, are in a pilot stage and preparing for launch
• China was the first large economy to pilot CBDC in 2020, aims for widespread domestic use of the e-CNY by 2023

The Cost Advantage

• CBDC affects the overall value of the money-issuing function to the extent that it reduces operational costs – those related to printing, storage, transportation and replacement of banknotes, and associated with delay in reconciliation and settlement

• Establishing a CBDC issuance may come with significant fixed infrastructure costs, but subsequent marginal operating costs are likely to be very low. Cost-effectiveness of cash management using CBDC vis-à-vis physical currency provides an additional motivation for introduction of CBDC, which may be also perceived as environment-friendly