RBI to launch a digital currency in FY23: Minister
The government also proposed to amend the RBI Act to include the central bank digital currency (CBDC) alongside traditional banknotes.
The Reserve Bank of India (RBI) will start issuing country’s much-awaited digital currency in financial year 2023, finance minister Nirmala Sitharaman announced on Tuesday, a move that the government believes will give an impetus to the digital economy.
The government also proposed to amend the RBI Act to include the central bank digital currency (CBDC) alongside traditional banknotes. It had received a proposal from RBI in October to amend to the Act and enhance the scope of the definition of banknote to include currency in digital form.
“Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce digital rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23,” Sitharaman said.
A central bank digital currency is the legal tender issued by it in a digital form. It is same as fiat currency and is exchangeable one-to-one with the fiat currency, only different in form. A 2021 survey by the Bank for International Settlements (BIS) found 86% of central banks were researching the potential for CBDCs, 60% were experimenting with the technology and 14% were deploying pilot projects.
While there is no clarity on the fineprint of the digital currency, experts pointed out the announcement would lead to payment companies preparing to offer products using CBDC.
“This will trigger a wave of preparatory activity amongst retail payments providers and apps to offer payment mechanisms using the digital rupee, along the lines as been seen in China with major digital payments players and apps offering digital yuan payments through their apps...,” said Harish Prasad, head of banking in India for FIS, a provider of technology solutions for merchants, banks and capital market firms.
According to Prasad, another effect of this in the slightly longer term could be that the dependence on unified payments interface (UPI) for small value payments could potentially reduce. “Given the level of growth being seen on UPI and the associated stress on technology infrastructures of issuers and banks, this may be a good thing after all,” he said.
Although working on a phased implementation strategy for the CBDC, the central bank has maintained that the risk of digital frauds is one of the major challenges, requiring systems that thwart such malafide attempts.