Central banks around the world are increasingly exploring the potential of issuing central bank digital currencies (CBDCs). According to the Atlantic Council, 19 of the G20 countries are in advanced stages of CBDC development, with 21 launching pilot projects and 11 introducing digital currencies. The Reserve Bank of India (RBI) has also been taking measured steps in this direction.
RBI’s journey into CBDCs began with the issuance of a concept note in October 2022, followed by pilots in both the wholesale and retail segments. The wholesale segment focused on settling secondary market transactions in government securities, while the retail segment was introduced to a closed user group in select locations. RBI Governor Shaktikanta Das recently mentioned the expansion of CBDC pilots to more banks, cities, people, and use cases.
The RBI’s annual report indicates the phased inclusion of cities like Ahmedabad, Chandigarh, Guwahati, Hyderabad, Indore, and Kochi in the CBDC pilot program. The retail CBDC has gained momentum, surpassing a million users and 2.6 lakh merchants. RBI aims to achieve 10 lakh CBDC transactions per day by year-end, potentially leveraging the widespread usage of the Unified Payments Interface (UPI) for interoperability.
CBDCs offer several advantages, including reduced operational costs linked to physical cash management and enhanced efficiency in the interbank market. Moreover, CBDCs, with their instant settlement capabilities, can make cross-border payments “cheaper, faster, and more secure,” benefiting countries like India, which receive significant remittances.
However, given the far-reaching implications of CBDCs on the financial and monetary system, caution is essential. RBI should thoroughly analyze the empirical data generated during pilot phases and use it judiciously to guide its future steps. CBDCs hold promise, but their implementation should be carried out thoughtfully and with an eye on long-term stability.
