How India's Central Bank Digital Currency May Function And Why It's Needed

How India’s central bank digital currency CBDC) may function and why it’s needed

- Anand Tandon

The Bank of International Settlements (BIS) carries out an annual survey on central bank digital currencies (CBDCs). The result of the latest survey of 2021 was published in May 2022. Out of 81 central banks that participated in the survey, 90 per cent indicated that they were exploring CBDCs - and the work momentum had accelerated. The Bahamas was first off the blocks, in 2020, with the launch of Sand Dollar, a retail CBDC. Nigeria issued eNiara in 2021 and Eastern Caribbean and China issued pilot versions of DCash and e-CNY, respectively.

On October 7, 2022, the RBI announced the issuance of a concept note on CBDC in India. It also mentioned that "The Reserve Bank will soon commence pilot launches of er for specific use cases." It's time to take a look at what this entails.

The choices

While defining the nature of et, RBI has defined five parameters on which choices need to be made (see diagram 'Design choices of CBDC as determined by the RBI').

Retail CBDC is meant for use by the general public as a store of value and for transactions. It can be held as an account with the RBI or through third-party mediums - pre-paid cards, e-wallets, etc. On the other hand, wholesale CBDCs are meant for specific institutions' interbank payments and securities transactions. This is similar to what happens when institutions settle among themselves using the RTGS (Real Time Gross Settlement) system.