The Reserve Bank of India may conduct a pilot trial of its central bank digital currency (CBDC) in the first quarter of the next financial year.
“We are on the job and looking into the various issues and nuances related to CBDC. It is not an easy thing to say that CBDC can be a habit from tomorrow on,” said P Vasudevan, Chief General Manager, Payment and Settlement Department, RBI at a banking event here on Wednesday, November 18.
“The banking system has been taking the lead in terms of currency distribution as a tiered model, whether the same model should be accepted for CBDC as well, we will have to see,” Vasudevan said.
What Is a Central Bank Digital Currency (CBDC)?
The term central bank digital currency (CBDC) refers to the virtual form of a fiat currency. A CBDC is an electronic record or digital token of a country’s official currency. As such, it is issued and regulated by the country’s monetary authority or central bank.
According to industry experts, as now being examined by RBI for retail and international trade payments, CBDC could have a huge impact on the financial ecosystem. Apart from building a cashless economy, it will play an important task in promoting grassroots-level financial inclusivity and modernizing the banking sector.
Major economies working on CBDC
Russia, Japan and China are already working on this. According to the 2021 BIS survey mentioned in the RBI report, 86 per cent of central banks surveyed are actively researching the potential of CBDCs, 14 per cent were deploying pilot projects and 60 per cent were experimenting with the technology.
Digital currencies may bring more transparency and traceability
A major use case for CBDCs will possibly be in the lending and insurance space and also for managing non-performing assets. According to experts, using digital currencies will bring more transparency and traceability to the levels of the financial services sector.
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