February 23, 2024

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India explores a digital version of the rupee

The country’s central bank, the Reserve Bank of India (RBI), recently announced that it might issue a digital version of the rupee. Advancements in the payments sector are pushing central banks to digitalise, and banks around the world are examining whether they could leverage technology and issue fiat money in digital form.

In a booklet, RBI said that private digital currencies have gained popularity in recent years but in India, regulators and governments have been sceptical and are apprehensive about the associated risks. Nevertheless, RBI is exploring whether a digital version of fiat currency will be necessary and if it is, how to operationalise it.

The booklet covers the development of payment and settlement systems in India from the beginning of 2010 till the end of 2020. According to a news report, a digital version of the rupee is one of the many ways that the RBI is considering increasing the adoption of digital payment systems in India. The booklet also mentions methods to make digital payments offline via mobile phones through “stored value component on cards”.

For digital currencies, the bank said CBDC (Central Bank Digital Currencies) will be legal tender and a central bank liability in the digital form. It is in the form of electronic currency, which can be converted or exchanged at par with similarly denominated cash and traditional central bank deposits. CBDC will be controlled and regulated by the bank, unlike most cryptocurrencies, which are not in the hands of any authority.

RBI has established a framework to capture the location and business details of commercial bank branches, ATMs, and banking correspondents across the country. It plans to extend a similar framework to collect and maintain information about the point of sales terminals and other payment system touchpoints.

The Reserve Bank of India had earlier come out with booklets on payment systems in 1998 and 2008. It captures the transformation of India in the sphere of payment and settlement systems. It describes, inter-alia, the legal and regulatory environment underpinning the digital payments systems, various enablers, payment options available to consumers, and the extent of adoption during the past decade. This third booklet in the series is expected to serve as a reference document for those interested in knowing more about payment system developments in the country.

In the booklet’s forward, the RBI Governor, Shaktikanta Das, explained that the booklet is a narrative of how the carefully thought-out steps taken by the RBI have resulted in transforming India into a country riding the crest of a wave in the evolution of digital payments. RBI is mindful of the challenges ahead. Various initiatives are underway to realise India’s vision on payment systems.

The RBI seeks to usher in a payment ecosystem that enables safe, quick, and affordable digital payments to everyone across the country as well as in cross-border payments and transactions, he added. The factors inhibiting the digital push are connectivity issues, inadequate acceptance infrastructure, lack of familiarity with newer, alternative payment methods, delay in getting complaints resolved, and security and privacy concerns.

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