India's Central Bank Crystalizes CBDC Vision in Concept Note

"Currently, we are at the forefront of a watershed movement in the evolution of currency that will decisively change the very nature of money and its functions," said the RBI.

AccessTimeIconOct 7, 2022 at 11:22 a.m. UTC
Updated Oct 10, 2022 at 3:26 p.m. UTC

The Reserve Bank of India (RBI) has published a 50-page concept note for the introduction of a central bank digital currency (CBDC).

The document is the first such comprehensive report by the RBI's Fintech Department, which was created in January 2022 with the responsibility of forming cryptocurrency regulations and creating a central bank digital currency.

The RBI said it will commence a pilot of the digital rupee for specific use cases soon, though it did not give a clear timeline. Earlier this year, Indian Finance Minister Nirmala Sitharaman announced a digital rupee via blockchain and other technologies would be issued some time in 2022 or 2023. And just last month, RBI's Deputy Governor T Rabi Sankar said a digital currency pilot project would be launched later this year.

The digital rupee will provide an additional option to the currently available forms of money, the RBI said in its concept note. "It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper."

The central bank's note stressed the importance of identifying "innovative methods and compelling use cases that will make CBDC as attractive as cash if not more." It said it has been working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch, calling the current zeitgeist a "watershed moment in the evolution of currency that will decisively change the very nature of money and its functions."

The RBI's motivations in creating a CBDC range from reducing operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in the payments system, to boosting innovation in cross-border payments space, to providing the public with uses that any private virtual currencies can provide, without the associated risks, to offer availability and resilience benefits when electrical power or mobile network is not available in remote locations.

While re-emphasizing the dangers of cryptocurrencies as a threat to the stability of the financial system, the RBI has touted its CBDC as 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 bank went so far as to say "the inherent design of cryptocurrencies is more geared to bypass the established and regulated intermediation and control arrangements that play a crucial role of ensuring integrity and stability of monetary and financial eco-system."

The RBI has maintained that banning cryptocurrency is the most suitable choice for India. In June 2022, Sankar said that CBDCs could "kill" whatever little case that could be for private cryptocurrencies.

The concept note comes at a time when India's once-burgeoning crypto ecosystem has faced difficult challenges, including stiff new taxes, a shadow ban on exchanges which served to send trading volumes sharply lower. Added to that were the global bear market in crypto, macro factors like inflation and the war in Ukraine, a probe against 10 exchanges, layoffs and the implosion of the policy body representing crypto interests.

The concept note released on Friday appears to go a step further than previous RBI statements, indicating more confidence in releasing both wholesale and retail CBDCs. A retail CBDC would be able to provide access to safe money for payment and settlement, said the bank, and a wholesale product has the potential to transform the settlement systems for financial transactions and make them more efficient and secure.

Getting to specifics, the RBI note indicates a preference the retail CBDC to be token-based, or closer to physical cash, while the wholesale CBDC would be account-based.

The RBI has not indicated a preference on whether it will choose a controlled database or distributed ledger technology for its CBDC. Instead, it has indicated a desire to be flexible to accommodate the evolution of the technology.

UPDATE (Oct. 7, 2022 13:20 UTC): Adds context throughout along with specific details of report, and tweaks headline.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Amitoj Singh

Amitoj Singh is a CoinDesk reporter.