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Informist, Monday, Jul 29, 2024

 

--RBI: Innovations in payments systems can impact policy transmission 

--RBI: Innovations in payment systems can impact price stability goal 

 

NEW DELHI - While a transformation in payment systems, including central bank digital currency, plays a pivotal role in fostering financial inclusion and inclusive growth, it can lead to challenges for price and financial stability, and monetary policy transmission, the Reserve Bank of India said in a report today.

 

"Innovations in payments systems, including CBDCs (central bank digital currencies), alter the environment in which the central bank operates and could have far reaching implications on monetary policy transmission, its own operational framework and objectives of price and financial stability," the central bank said in its report on Currency and Finance for 2023-24.

 

If the adoption and use of central bank digital currency rises, it could weaken monetary policy transmission, the report said. "A reduction in availability, and/or an increase in the cost of credit from the banking sector could impact aggregate demand and supply in the economy and weaken the bank lending channel of monetary policy transmission," the report said.

 

On the flip side, if digital currency sees positive remuneration, it could lead to more effective monetary policy transmission as banks will have to indulge in a war for deposits, and will have to maintain competitive deposit rates, the report said. Interest bearing central bank digital currencies could also transmit monetary policy actions directly to economic agents, improving efficacy of transmission, it said.

 

Currently, the RBI is conducting pilots for wholesale and retail central bank digital currency, also known as e-rupee. As of Mar 31, the value of banknotes in circulation in the form of wholesale e-rupee was around 800,000 and in the form of retail e-rupee was 2.34 bln rupees.

 

The RBI is looking to focus on expanding the scope of the central bank digital currency pilot to cover new cases such as functionality and programmability in the current financial year, according to the RBI's annual report released in May. The central bank will also look to expand the scope of digital currency to cross-border transaction and tokenisation of assets. 

 

India has also been at the forefront of the global payment revolution with Unified Payments Interface transforming the retail payment landscape. "India’s payment architecture is influenced by a combination of factors like technological advancements, agents, institutions, and policy interventions," the report said.

 

In order to increase the use of digital payments, the security of payments is a must, the report said. Cybersecurity threats in the digital payments ecosystem pose risks to the integrity and availability of payment systems, and also undermine consumer trust and financial stability, it said.

 

"Overall, India stands ready to further harness the benefits of the digital payments revolution, leveraging on a rapidly growing economy, a large and young population, increasing internet and smartphone penetration, and supportive government policies," the report said.  End

 

Reported by Shubham Rana

Edited by Vandana Hingorani

 

 

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