Updated: Fri, 07 Oct 2022 06:32 PM IST
THE Reserve Bank of India (RBI) on Friday released a so-called 'concept note' on Central Bank Digital Currency (CBDC) with an aim to spread awareness about the planned features of the digital rupee.
It also mentioned that it will soon start pilot launches of the digital rupee for specific use cases. The purpose behind the issue of this concept note is to create awareness about CBDCs in general and the planned features of the Digital Rupee, in particular, the RBI said in a statement.
"It explains the objectives, choices, benefits, and risks of issuing a CBDC in India. The Note also seeks to explain Reserve Bank's approach towards the introduction of the CBDC," the RBI said as stated by news agency ANI.
The concept note examines the implications of the introduction of CBDC on the banking system, monetary policy, financial stability, and analyses privacy issues. It also discusses key considerations such as technology and design choices, possible uses of the Digital Rupee, issuance mechanisms, etc.
CBDCs being an electronic form of sovereign currency should imbibe all the possible features of physical currency. The design of CBDC depends on the task it is supposed to perform, and the design also determines its implications for payment systems, monetary policy as well as the structure and stability of the financial system. One of the main considerations is that the design features of CBDCs should be least disruptive.
Forms of CBDC:
CBDC can be structured as ‘token-based’ or ‘account-based’. A token-based CBDC is a bearerinstrument like banknotes, meaning whosoever holds the tokens at a given point in time would be presumed to own them.
CBDC can be structured as 'token-based' or 'account-based'. A token-based CBDC is a bearer instrument like banknotes, meaning whosoever holds the tokens at a given point in time would be presumed to own them. In contrast, an account-based system would require maintenance of record of balances and transactions of all holders of the CBDC and indicate the ownership of the monetary balances.
Also, in a token-based CBDC, the person receiving a token will verify that his ownership of the token is genuine, whereas in an account-based CBDC, an intermediary verifies the identity of an account holder. Considering the features offered by both the forms of CBDCs, a token-based CBDC is viewed as a preferred mode for CBDC-R as it would be closer to physical cash, while account-based CBDC may be considered for CBDC-W
Earlier, in the Union Budget 2022-23, Finance Minister Nirmala Sitharaman had announced about rolling out of the digital currency called Central Bank Digital Currency (CBDC).
(With ANI inputs)