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Informist, Tuesday, Oct. 29, 2024

 

By Krity Ambey and Sagar Sen

 

NEW DELHI – Notwithstanding the Reserve Bank of India's assurances, the finance ministry seems sceptical about the large-scale adoption of the retail Central Bank Digital Currency and is concerned about the risks it can pose to financial stability in a future where bank deposits can be tokenised.

 

"They (bank customers) can then effortlessly transfer their deposits to another bank offering more favourable returns, leveraging the seamless on-chain settlement enabled by CBDC," the official told Informist on the condition of anonymity. Should such transfers become widespread, it would seriously impact the liquidity as "a seamless system may encourage people to make the switch for even a 0.1% higher return," the official said.

 

The government and the RBI are aligned in their vision for the wholesale CBDC, the official said. "We are actively engaging (with the RBI) to improve and explore cross-border settlement through CBDC," the official said. But New Delhi does not "see a need for retail CBDC especially when we already have UPI (Unified Payment Interface)."

 

In the pilot stage, bank customers hold the retail CBDC, or e-rupee, in separate digital wallets. These wallets can be loaded with money from the bank account linked to the wallet. The pilot, involving 15 participating banks, has 6 million users, including 5.5 million individuals and half a million merchants, RBI Governor Shaktikanta Das said Monday. Retail CBDC worth INR 7.56 billion was in circulation as of Oct. 11, as per the latest data.

Launched by the RBI in 2022 to counter the growing popularity of crypto assets such as Bitcoin, the retail CBDC has been positioned by the central bank not as an alternative to the domestic instant-payments system Unified Payment Interface but as a digital version of currency notes. Speaking over the weekend at the 39th Annual International Banking Seminar in Washington, DC, Governor Das touted the financial inclusion and programmability aspects of India's CBDC and its ability to help individuals "manage their cash position much more efficiently".

 

"You can draw it (CBDC) instantly and at the end of the day... if you feel that you don’t need that much of currency, you can immediately put it back into your bank accounts," Das said, adding that the future of money will be digital, "there is no escape from that".

 

"There is no need to be sceptical about whether we should have a CBDC parallel to UPI... they are two different systems; they can talk to each other, they can become interoperable. I think CBDC and fast-payments systems working in parallel, they will act as a backup for each other," Das said on Saturday.  End

 

Edited by Saji George Titus

 

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