The Reserve Bank of India is developing a central bank digital currency – what does this mean for the economy?


Reserve Bank of India (RBI) Developing Central Bank Digital Currency

The Reserve Bank of India (RBI) has announced the development of a Central Bank Digital Currency (CBDC) project, equipped with programmable features and the ability to operate offline. In its first Monetary Policy Statement on February 8, 2024, the RBI revealed plans to introduce additional programmability and offline payment capabilities within the retail CBDC payments.

Digital Form of Central Bank Issued Banknotes

CBDC is essentially a digital form of banknotes issued by the central bank of a country. Currently, 130 countries, representing 98% of the global GDP, are exploring the possibility of introducing their own CBDCs. In India, the country has reached the milestone of one million daily CBDC transactions.

CBDC as a Complement to Existing Forms of Money

The Reserve Bank of India emphasized that the central bank digital currency is meant to complement, not replace, existing forms of money. CBDC is intended to provide an additional payment avenue for users, potentially enhancing the payment system efficiency.

Stability of the Indian Rupee Compared to Other Currencies

In the context of the global currency market, the Indian Rupee (INR) remains stable compared to other emerging market currencies and several advanced economy currencies. Despite a 0.9% decrease against the USD on a year-on-year basis, the INR is performing favorably compared to many other emerging market currencies.

Planned Actions of the Reserve Bank of India

The Reserve Bank of India (RBI) is in discussions with various financial institutions to develop a strategy for introducing the digital rupee into the monetary market. Additionally, there are plans to utilize CBDC for money settlements within calls and contemplate integration with the SWIFT payment system for cross-border payments.