CBDC does not have the same level of market volatility as a 'typical' private digital asset like Bitcoin or Ethereum.
The Reserve Bank of India (RBI) is preparing to introduce Central Bank Digital Currency (CBDC) (CBDC). According to RBI Deputy Governor T Rabi Sankar, the digital monetary asset will be introduced in a phased rollout method. According to Sankar, the CBDC is being launched in place of other private digital assets such as cryptocurrencies and will be a legal and genuine type of virtual coin on par with its real-world counterpart. He went on to say that the RBI is putting together proposals for a regulatory framework that will allow the CBDC to coexist with cash and digital payment systems in India.
Having said that, it's critical to understand what the Central Digital Bank Currency is, how it works, and what the RBI's position is on it.
What is a Digital Currency Issued by a Central Bank?
As the name implies, a CBDC is essentially legal money issued by the central bank. It has the same functional capabilities as a fiat money and is exchangeable in nature in a one-to-one manner with said fiat currency. The only difference is that it now takes the form of a digital form. It is vital to distinguish it from existing private digital currencies such as Bitcoin and Ethereum, despite the fact that it is a digital currency. These private crypto assets have no legal issuers and cannot be regarded money or currency, whereas the CBDC may.
The CBDC is a sovereign currency issued by a central bank in electronic form, much like any other currency issued by a central bank. At the end of the day, this type of currency is recorded as a currency in circulation on the Central Bank's balance sheet.
“CBDC will be in the arsenal of most, if not all, central banks in the world,” Sankar predicted. Setting this up will necessitate careful calibration and a nuanced execution strategy. Stakeholder interactions and considerations on the drawing board are critical."
The RBI's Position on the CBDC
The RBI is currently looking into ways to introduce the digital asset for widespread use on a large scale, according to Sankar. Legal frameworks would also have to be considered in this process. Several existing legal outlines and sections, such as sections 24, 25, and 26 of the RBI Act, as well as the Coinage Act of 2011, would need to be amended. Changes to the Foreign Exchange Management Act and the Information and Technology Act would also be required.
"RBI has been looking into the benefits and drawbacks of introducing CBDCs for a long time," Sankar added. “Generally speaking, governments have introduced specific-purpose CBDCs in the wholesale and retail segments,” he continued. Following the evaluation of the impact of these models, the launch of general purpose CBDCs will be considered. The Reserve Bank of India is now developing a phased rollout plan and evaluating use cases that could be implemented with minimal disruption to India's banking and monetary systems."
The Reserve Bank of India's Position on Cryptocurrency
In a statement, Sankar stated that cryptocurrencies such as Bitcoin do not always fall within the RBI's definition of "currency." It is for this reason that the RBI, as well as other central banks across the world, are considering CBDC as a viable alternative to the volatile crypto asset in the mainstream economy. The CBDC reduces risk because it is not affected by market changes.
According to a report by the Bank of International Settlements (BIS), 86% of central banks around the world are looking into CBDC. He went on to say that 60% of central banks are now experimenting with it, and 14% are in the pilot testing phase with CBDC.
