Central Bank Digital Currency: How Is It Shaping Up?
Business Today|April 17, 2022
India is set to welcome its own digital currency in the near future. What are the building blocks of the reserve bank of india’s central bank digital currency and what will the path to a CBDC look like?
Anand Adhikari
Central Bank Digital Currency: How Is It Shaping Up?

WHAT IF THE government could transfer subsidies directly to beneficiaries, and no, we aren’t talking about direct benefit transfer (DBT). Say food subsidy was credited directly to the beneficiary’s mobile wallet and could only be used to buy pre-defined rations. This could soon be a reality with a central bank digital currency, or CBDC.

India has set a deadline of 2023 to launch its digital currency. A CBDC will be legal tender like paper currency with all the characteristics of the existing fiat currency. “Digital currency will lead to a more efficient and cheaper currency management system,” Finance Minister Nirmala Sitharaman said in her Budget speech for 2022-23.

A CBDC has other benefits. Now, account holders deposit their money in commercial banks. A customer’s deposit carries the liability of the bank to repay it on demand. The Reserve Bank of India (RBI) is under no obligation to compensate or reimburse any loss of value. But CBDC is supposed to be a central bank liability.

Why are central bankers so interested in cryptos? It’s because they sense likely collateral damage in terms of losing control over monetary policy thanks to the interest in such currencies among the young. “Cryptos are raising concerns on two fronts—monetary stability and financial stability. The RBI is more concerned about the monetary stability part,” says Subhash Chandra Garg, former finance secretary. “Cryptos might enable money laundering and getting around capital controls—essentially a digital hawala channel. During periods of financial stress, this might amplify market volatility,” says Saugata Bhattacharya, Senior VP & Chief Economist, Axis Bank.

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