India needs to embrace basic model of CBDC, RBI recommends

India needs to embrace basic model of CBDC, RBI recommends

A recent report by the Reserve Bank of India, the country’s central bank, suggests that India should first incorporate a basic version of the CBDC model before moving on to more sophisticated ones.

The report outlined some of the benefits that come with adopting a basic version of central bank digital currency (CBDC). “In comparison with existing forms of money, it can offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement,” it read.

The RBI is yet to discuss the design elements of the currency, the distribution architecture, and the underlying technology. The country’s central bank is looking at whether it would be used for general purpose and retail use (CBDC-R) or wholesale use (CBDC-W). In addition, it has not been decided if the RBI should distribute the currency or the country’s central bank.

It said in the report:

“Given its dynamic impact on macroeconomic policy making, it is necessary to adopt basic models initially, and test comprehensively so that they have minimal impact on monetary policy and the banking system.”

While the RBI has suggested a positive stance on CBDCs in the report, the same cannot be said for general crypto assets, such as Bitcoin. The central bank previously put a blanket ban on crypto assets in 2018, which was later overturned by the supreme court in 2020.

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