 "Reserve Bank of India (RBI) Governor Shaktikanta Das during a press conference after delivering the Monetary Policy Statement, at the RBI headquarters in Mumbai, Friday, April 5, 2024. (PTI Photo)")
The Reserve Bank of India (RBI) may start a pilot programme for the wholesale segment of Central Bank Digital Currency (CBDC) in commercial papers (CPs) and certificates of deposits (CDs), said Governor Shaktikanta Das on Monday.
Das said the daily retail transaction volume of CBDC through interoperability with the United Payments Interface (UPI) has reached one million a day but retail users continue to show a strong preference for the UPI.
He said a more extensive volume of transactions is required to fully grasp the broader economic impact of CBDC, particularly on monetary policy and the banking sector.
Das added that permanent deletion of transactions can make the e-rupee or the CBDC anonymous and at par with paper currency.
“Anonymity can be addressed through legislation and/or through technology. For example, through permanent deletion of transactions,” Das said.
Also Read
“The basic principle is that CBDC can have the same degree of anonymity as cash, no more and no less,” he added.
The benefits of CBDCs will become more apparent with the introduction of offline usage and programmability features.
The primary goal of these pilots is to analyse shifts in consumer behaviour regarding bank deposits, he said.
“Now, going forward, other instruments like CPs and CDs will be tried out in the pilots, along with security and securities tokenisation features,” said Das while speaking at the BIS Innovation Summit 2024, in Basel, Switzerland.
On November 1, 2022, the Indian central bank started the wholesale pilot of CBDC for settlement in government bonds.
A month later, the pilot of the retail CBDC kicked off.
“We have also enabled interoperability of CBDC with UPI. While the number of transactions has reached a high of one million a day, we still see preference for UPI among the retail users. We of course hope that this will change, going forward,” Das said.
“Now, the advantages of CBDCs will be more visible when we enable offline use and programmability features. A key objective of the pilots is to study the change in consumer behavior vis-a-vis bank deposits. We need many more transactions to understand its wider economic effects, especially on monetary policy and the banking system,” he added.
Das outlined significant design principles and insights from the pilots. He called for efforts to enable offline CBDC transactions and introduce programmability for financial inclusion.
He underscored that the CBDC is crafted to be non-interest-bearing, aiming to alleviate risks linked with bank disintermediation.
The implementation of a two-tier distribution model was noted, where the central bank creates CBDCs and banks facilitate distribution.
CBDC denominations mirror physical currency, enhancing user comprehension. Anonymity is managed through legislation or technology, similar to cash transactions. Furthermore, he said that the engagement of non-banks in distribution broadens CBDC accessibility.
“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 scalability, resilience, and agility of the CBDC system. The pilots are also enabling us to take informed decisions like positioning the CBDC alongside the UPI. CBDC offers a unique value proposition as a currency system, a store of value and anonymity while complimenting the existing digital payment systems,” he said.
The governor also said that in an evolving ecosystem where traditional and emerging technologies hold significant sway, ensuring interoperability between fast payment systems and new tokenised money is crucial to prevent fragmentation.
Achieving this harmony demands a strategic and collaborative effort among central banks, financial institutions, and fintech companies, Das said.
He added that developing appropriate governance and operating framework across multiple countries poses a complex and formidable challenge.
