The first trials for its own digital currency could be launched by the Reserve Bank of India, the central bank of the country, by December, said the governor of the central bank Shaktikanta Das in a media interview.
The potential and challenges of developing and issuing of digital currencies are being explored by central banks all over the world including by those in China, Europe and the United Kingdom. The options available include issuing such digital currencies for either commercial lenders or for the public directly.
Such crypto currencies have been given the name of called central bank digital currencies, or CBDC – which are essentially legal tender in the digital form, and are likely to be the online version of the respective physical currencies already issued by the central banks.
In the case of India that would be the digital rupee.
“We are being extremely careful about it because it’s completely a new product, not just for RBI, but globally,” Das said in a television interview earlier this week.
All aspects of issuing digital currency, including its security, impact on India’s financial sector as well as its impact on monetary policy and the existing currency in circulation, are being considered by the RBI, Das said.
RBI is also debating whether to follow or use a centralized ledger for the digital currency or suing the so-called distributed ledger technology (DLT), Das added.
DLT is a digital database that gives the opportunities to more than one participant to access, share and record transactions at the same time. Opting for a centralized ledger would mean that the database would be owned and operated by a single entity which in the case of CBDCs is the central banks.
“I think by the end of the year, we should be able to — we would be in a position, perhaps — to start our first trials,” Das said.
The central bank was working toward a “phased implemental strategy” for a digital currency, said T Rabi Shankar, the deputy governor of the RBI last month.
Following a notable decline in use of cash and a growing interest in cryptocurrencies, such as bitcoin, central banks were prompted to step up their efforts at exploring opti9ons of issuing of digital currencies since the last year.
The lead in this regards has been taken by the People’s Bank of China – China’s central bank, as it already has real life trials of its own digital currency in a number of cities in the country. Possibilities of issuing digital euro and a UK CBDC are also being looked into by the European Central Bank and the Bank of England respectively.
There are a number of ways that CBDCs are different from any other cryptocurrencies. One of the major differences is that any CBDC would be completely regulated by a central agency – most likely the central banks. Another difference is that central bank digital currencies are expected to function very similar to their fiat counterparts and be accepted widely, unlike cryptocurrencies that are mostly seen as tradeable assets that have wildly fluctuating prices.
(Adapted from CNBC.com)