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RBI to introduce new Digital Currency in future

Veda Thangeda by Veda Thangeda
July 24, 2021
Reading Time: 2 mins read

The Reserve Bank of India (RBI) on Thursday announced the introduction of its own version of digital currency which is the Central Bank Digital Currency in a major move. “This currency, the CBDC or the Central Bank Digital Currency will be launched by the RBI in a phased manner only after weighing its impacts carefully, that will include how it could hamper the regular working of banks, cash transactions, and its effect on the conduct of the monetary policy” explained T Rabi Sankar, the deputy governor of RBI, during the announcement of the digital currency.

He further explained that “conducting tests before introducing it widely in the wholesale and retail market will be possibly done very shortly”. The RBI is however currently working on the phased implementation strategy of this model so it will cause little or no disruption upon the introduction in the market.The introduction of Central Bank Digital Currency has been in the works for a long time for RBI and they are exploring all the options, pros, and cons for quite some time now. Several countries already introduced this and the central bank will draw its lessons from them for a smooth ride.

The issue of CBDC has been under the wraps in the last few years because of the private virtual currencies, such as bitcoins. While these private currencies have their benefits, they are however not backed by any government. The wider usage of these currencies will threaten established models of currencies issued by countries within a border.

As currencies such as bitcoin are gaining popularity, they will pose a severe threat to models like CBDC and other national currencies that have limited convertibility. Nevertheless, it will take time for a wider adoption especially of this model as a large part of the Indian population are not acquainted with this tech, and the risk of cybercrime will continue to challenge CBDCs as well.The adoption of CBDCs can also pose implications for the banking system. CBDCs can reduce the transaction demand of the bank deposits and will reduce the day-to-day liquidity for the settlement of transactions. However, If the large part of cash usage is replaced by CBDCs, the cost of printing, transporting, storing, and distributing currency will also be reduced.

Therefore, “the RBI will introduce the CBDC after careful consideration of all the factors that can harm and break the pertaining economy. Not to forget, we need to keep India’s leadership position in the global payment system in mind as well” said the deputy governor of RBI.

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