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The Reserve Bank of India (RBI) plans to increase the number of Central Bank Digital Currency (CBDC) transactions to one million per day by the end of 2023, according to Deputy Governor T Rabi Sankar. This ambitious target comes as the RBI currently records around 5,000-10,000 transactions daily with its retail CBDC, e₹-R.
CBDC is a type of digital or virtual currency that is issued and regulated by a country’s central bank. They represent a digital form of a country’s fiat currency and are backed by that country’s monetary reserves. CBDC is designed to operate and function like traditional money but in digital form, which can be used for day-to-day transactions, cross-border payments and other financial operations.
RBI’s strategy to increase CBDC usage includes leveraging the Unified Payment Interface (UPI) network. “There will be one QR code, and you can swipe the QR code using the CBDC app. If the merchant has a CBDC account, payments will be completed in the CBDC wallet. If the merchant does not have a CBDC account, then there will be an option to make payments using UPI,” explained Sankar.
Currently, 1.3 million customers and 0.3 million merchants use the digital retail Rupee, with 13 banks offering retail CBDC. These banks have partially rolled out interoperability, allowing QR codes to be scanned using the CBDC app. Full interoperability for CBDC customers using UPI for payments is expected by the end of the month. RBI also plans to incorporate the remaining 20-25 banks to offer interoperability to CBDC customers, although this may take longer.
Sankar also highlighted the potential of CBDCs in reducing fees for cross-border transactions, which are currently at 6% for small value transactions according to World Bank estimates.
In contrast to Sankar’s positive stance on CBDCs, he warns that stablecoins pose an existential threat to policy sovereignty, especially for countries like India. Stablecoins tied to the base currency, while beneficial to certain economies, can run the risk of dollarization and transfer of seigniorage to private issuers, displacing the use of the rupee in the economy.
Stablecoins are a type of cryptocurrency that are designed to maintain a stable value relative to a particular asset or pool of assets. Stablecoins can be pegged to currencies. They are often used to provide stability in highly volatile crypto markets. Examples include Tether (USDT) and USD Coin (USDC), which are not issued by a central bank or government, but by private companies, thereby weakening the authority’s control over them.
Sankar suggested that a stable solution would be for each country to have its own CBDC, with a mechanism for these CBDCs to interact and transact with each other.
The RBI also takes into account the anonymity aspect of the CBDC, a feature that defines the currency. However, Sankar emphasized that any decision regarding anonymity must be legally supported and consistent with the Money Laundering Prevention Act (PMLA).
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