Two days after the Reserve Bank of India rolled out the first pilot for retail digital Rupee (e₹-R) on December 1, Deputy Governor T. Rabi Sankar pointed out that the need for digital currency was felt as private currencies posed a threat to investors and economies. The RBI launched the pilot for retail CBDC (central bank digital currency) .
“We saw an environment where private currencies were evolving. We realised that this poses a threat to investors, systems, and the economy. We also realised that private currencies have shown that digitalising currency can possibly benefit,” the RBI Deputy Governor said at an event organised by the Indian Bank’s Association.
The way to deal with it was to provide a digital currency, Sankar noted adding that if there is anything that a private cryptocurrency can do, we should be able to create a product that will do that without the associated risks in a safer format in fiat money backed by the government and issued by the central bank.
This is essentially what the RBI is doing in the CBDC experiments.
According to Sankar, the RBI’s initial CBDC pilot projects are aimed at ensuring the efficacy of all systems and as they go along, the pilots will focus on identifying the right technology on the right architecture for distribution of digital currency.
The launch of pilot for retail CBDC came a month after the central bank rolled out a wholesale CBDC pilot for trading in government bonds on November 1.
Sankar also said that while the wholesale CBDC pilot was currently limited to government bonds, more use cases would be included, including money market instruments. The next step in the wholesale pilot, according to Sankar, would probably be trying out the CBDC using blockchain.
He indicated that the central bank could soon introduce smart contracts, tokenized bonds, and several other possibilities. According to the central banker, if there was a view that the digitisation of the currency would resolve the problems of the economy of payments systems, the RBI would facilitate the process.
UPI market cap deadline extended
Sankar also spoke about the National Payments Corporation of India’s decision to push ahead the deadline for existing third-party apps to comply with its UPI market share norms to December 31, 2024. “We have seen it (the NPCI’s decision), it is fine. Competition takes time to evolve, we’ll have to wait for it to evolve. And at this stage of time, probably implementing that, would have cost some sort of friction in UPI,” he said.
He noted that the lenders have been slow to respond to the evolution of the UPI. “How is it that a system of transactions between two bank accounts has evolved in a way where most of the business is owned by non-banks? Clearly, banks missed a step here,” Sankar spoke.
