Digital Currency to Soon Become Reality in India: RBI

The Reserve Bank of India is working toward a “phased implementation strategy” of a Central Bank Digital Currency (CBDC), RBI deputy governor T Rabi Sankar said on Thursday. A pilot to test a general-purpose digital currency is a possibility in the near future, he said.

Sankar said CBDC is needed to protect consumers from the “frightening level of volatility” seen in some of the virtual currencies which have no sovereign backing.He said central banks across the globe are engaged in exploring CBDCs, and a few countries have also introduced such concepts.”Perhaps the idea for CBDCs is near,” he said while participating in an online discussion organised by The Vidhi Centre for Legal Policy.

What is Central Bank Digital Currency?
A Central Bank Digital Currency (CBDC) is the digital form of a country’s fiat currency that is also a claim on the central bank. Instead of printing money, the central bank issues electronic coins or accounts backed by the full faith and credit of the government.

What are the Challenges with Currency?

There are several challenges, and each one needs careful consideration before a country launches a CBDC. Citizens could pull too much money out of banks at once and purchase CBDCs, triggering a run on banks. Centralizing, through the government, a system designed to be private may produce backlash from users and create cybersecurity risks. Regulatory processes are not updated to deal with the new forms of money and need to be made more robust before adopting this technology.

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