The Reserve Bank of India (RBI) has released a document announcing that it will soon be commencing the pilot launch of its e-rupee.
The RBI’s FinTech Department released a document on Friday, October 7, detailing two proposed models of a central bank digital currency (CBDC). The central bank is looking at both a retail CBDC for consumers and businesses and a wholesale CBDC aimed at streamlining interbank transfers and other wholesale transfers. According to reports, the RBI has established an internal working group to make recommendations on the CBDC’s design and testing. Although two different concepts are detailed, each pilot will start by building the currency with technology partners based on the findings from the working group. Following the recommendations, the CBDCs will be tested in a sandbox environment to evaluate their design and functionality. Thereafter, the central bank said it will test the resilience of the CBDCs by exposing them to stressful scenarios and will then assess the results. According to the report, if test outcomes are met, the RBI will commence a pilot of the CBDC.
The announcement from the RBI has not been met with enthusiasm across the board as it made it clear that for both versions of the CBDC, it will ensure that it can properly identify its owners or holder, similar to that of fiat currency, and in the process attacks one of the very advantages of digital currencies – privacy. In addition to threatening privacy, the Indian government recently imposed tax rates of 30% on cryptocurrency transactions in India which will naturally tip the scales the favour of using a CBDC in order to avoid taxes.
Digital assets have been very popular in India, with the nascent cryptocurrency market even reaching a growth of 641% in just 12 months between July 2020 and June 2021, but adoption rates in the sector might now be in serious jeopardy. The RBI said:
It is the responsibility of the central bank to provide its citizens with a risk-free central bank digital money which will provide the users the same experience of dealing in currency in digital form, without any risks associated with private cryptocurrencies.
The government has been rather vocal about its stance on cryptocurrencies but has not yet sought an outright ban. The newest report on CBDCs however suggests that the government may be inching towards shutting down digital currencies not issued by the government.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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