Reserve Bank of India considering the need for CBDC

The Reserve Bank of India (RBI) is currently exploring the possibility of developing a central bank digital currency (CBDC)

The Reserve Bank of India (RBI) has disclosed that it is currently exploring the possibility of developing and issuing a CBDC. The need to have a state-owned digital currency comes as the global payment system shifts online owing to the rise of cryptocurrencies and other alternative payment systems.

The RBI revealed its intention in a booklet on payments released yesterday. According to the RBI, it is currently looking into whether there is a need for a digital version of its fiat currency. If the bank finds the need, it will find ways to develop the CBDC and put it into use.

The rise of digital payment solutions has significantly affected the use of paper cash. According to the booklet, paper usage is down massively over the past decade. The booklet pointed out that “The shift in payment preference in the last ten years is evidenced by the fact that the volume of paper clearing, which comprised of 60% of total retail payments in the financial year (FY) 2010-11, shrunk to 3% in the FY 2019-20“.

Electronic payment systems are now dominating the financial sector. The RBI highlighted that the electronic payment systems now control 61% of the retail payment space and have a 75% share in value during the FY 2019-20.

These statistics have made it necessary for the RBI to explore delving into the digital payment space. The RBI intends to make the payments space a large-volume, low-average-value and low-cost game for sustained presence and continuance.

RBI still not a fan of crypto

The Reserve Bank of India acknowledged the growing popularity of cryptocurrencies globally but maintains that it isn’t a fan. According to the RBI, Indian regulators and local government bodies are sceptical and apprehensive about cryptocurrencies.

While the RBI recognises cryptocurrencies to be a legal tender in the country, it considers them a central bank liability in the digital form. The RBI has had a complicated relationship with cryptocurrencies after issuing a blanket ban asking Indian banks not to provide banking services to cryptocurrency exchanges in April 2018. However, the country’s Supreme Court overturned the executive ban imposed by RBI last year. This has led to the growth of India’s cryptocurrency sector as more crypto exchanges set up shop in the country.

Despite the Supreme Court’s rulings, the RBI had always maintained that it doesn’t like cryptocurrencies, and they remain a liability in the eyes of the apex bank.