On Monday, the Governor of the Reserve Bank of India, Shri Shaktikanta Das, discussed the progress being made on its central bank digital currency (CBDC) the digital Rupee. The Governor said the central bank is in “no rush” to rollout but intends to gradually introduce it.
Shri said in a statement:
Central Bank Digital Currency (CBDC) has dominated recent policy discourse across the world. In India, the Reserve Bank launched CBDC pilots in both retail and wholesale segments in late 2022. The retail pilot currently has over 5 million users and 16 participating banks. While the retail pilot started with initial use case of payments, currently both the offline and programmability functionalities are also being tested. The programmability feature of CBDC could serve as a key enabler for financial inclusion by ensuring delivery of funds to the targeted user.
Let me illustrate this by an actual pilot that was launched recently. Tenant farmers often find it difficult to access agricultural credit for inputs and raw materials as they do not have the land title to submit to the banks.
However, programming the end use for purchase of agricultural inputs can give the required comfort to banks and thus establish the identity of a farmer not through his land holding but through the end use of funds being disbursed.
Yet another path breaking use case is farmers getting purpose bound money through programmable CBDC for generation of carbon credits. Other new use cases aimed at testing features such as anonymity and offline availability are proposed to be rolled out gradually.
It is important to emphasize that there should not be in any rush to roll out system-wide CBDC before one acquires a comprehensive understanding of its impact on users, on monetary policy, on the financial system and on the economy. Such understanding would emerge from generation of user data in pilots.
Actual introduction of CBDC can be phased in gradually. Undoubtedly, CBDC has the potential to underpin the payment systems of future, both for domestic payments and also cross-border payments.
Having said that, Shri also acknowledged that the Reserve Bank’s Unified Lending Interface (ULI), a real-time payment system launched in 2016, “has played a significant role in the growth of retail digital payments in India,” Shri said. This is identical to the Bank’s even faster and similarly named Unified Payment Interface (UPI).
“With the emergence of Fast Payment Systems across countries and experimentation around CBDC, new possibilities are opening up to bring in greater efficiency to cross-border payments,” Shri added. “[…] Ideally, while the legacy payment systems should be able to connect to each other and so should the CBDC systems, one country’s legacy system should also be interoperable with another country’s CBDC.”
Shri concluded his speech, saying:
As you may recall, the theme of India’s G20 presidency in 2023 was “One Earth, One Family, One Future”. It underlies India’s thought process in how it sees the world and itself as being part of one family with a common future.
Ledger Insights also noted: ‘Notably, the BIS work on tokenization has had considerable input from India. Hence, naming its shared ledger work as a ‘Unified Ledger’ may or may not be a coincidence.’
AUTHOR COMMENTARY
Frankly, I for one think this is a lot of political speak. “Testing” a CBDC is really saying that they basically have one ready to go, and officially go live when decided. Central banks around the world have tried to play stupid and act like they are not even sure if they are going to implement a CBDC, but we know at this point all major central banks have a CBDC ready to launch: it’s just a matter of when…
SWIFT, the largest international banking network that facilitates transactions and interbank lending between nations, announced earlier this year that it would be launching its CBDC and tokenized asset system next year or in 2026. This gives us a pretty good timeline we can follow.
Proverbs 22:7 The rich ruleth over the poor, and the borrower is servant to the lender.
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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