The Reserve Bank of India (RBI) is set to adopt a “graded approach” towards the introduction of the central bank digital currency (CBDC) in India, the annual report published on May 27 notes.
RBI to Take a “Graded Approach” Toward CBDC Introduction
After a lot of speculation regarding the launch of India’s CBDC, the digital rupee, it seems that the country’s central bank has made up its mind to take a “graded approach” toward the introduction of CBDC.
In its report, the RBI said the design of CBDC should be in line with the objectives of its monetary policy, financial stability, and efficient operations of currency and payment systems. It is worthy of note that the central bank’s statements come just a few months after it announced it was planning to begin testing and running pilot projects of the CBDC.
The report reads in part:
“The Reserve Bank is engaged in the introduction of a central bank digital currency (CBDC) in India. The design of CBDC needs to be in conformity with the stated objectives of monetary policy, financial stability and efficient operations of currency and payment systems.”
“The Reserve Bank proposes to adopt a graded approach to introduction of CBDC, going step by step through stages of Proof of Concept, pilots and the launch.”
For the uninitiated, a Proof of Concept is an exercise in which work is focused on determining whether an idea can be turned into reality or verifying whether the idea will function as desired in the real world.
A Long Time Coming
Reports surrounding the launch of the digital rupee started surfacing as early as 2019 when some regulatory bodies in India expressed their concerns about cryptocurrencies and how they could pose a systemic threat to the Indian Rupee.
At the time, Subhash Garg, the former Economic Affairs Secretary of the Indian Ministry of Finance, noted:
“If bitcoin and other digital currencies are going to be allowed to be used for payments then whether it will end up destabilizing the fiat currency is a major concern for them (the Garg panel).”
In April 2021, RBI Governor, Shaktikanta Das, said the central bank is adopting an “extremely cautious” approach to CBDC.
“We are being extremely careful about it because it’s completely a new product, not just for RBI, but globally. “I think by the end of the year, we should be able to — we would be in a position, perhaps — to start our first trials.”
Similarly, earlier this year the Indian government made it clear that it prefers the digital rupee over any other so-called decentralized cryptocurrency as it slapped a hefty 30 percent tax on all cryptocurrencies while also stating the digital rupee will likely be launched by Q1, 2023.
In a similar vein, India’s neighboring country China is going ahead full-throttle with its CBDC ambitions with new pilots across the country. In the latest of such developments, the authorities tested the digital RMB smart student ID card at the Hainan Lu Xun Middle School.