RBI's digital currency: What the global experience holds for India
In a little more than a year, discussions on central bank digital currencies (CBDCs) have moved from the fringe to the mainstream. In India, legal enablers for a digital currency have been put in place via the Finance Bill, 2022. All eyes are now on the Reserve Bank of India.
What will the RBI's CBDC look like?
The Finance Bill lays down the likely framework. It proposes that the CBDC "should also be regarded as bank notes". As such, the CBDC ought to be what the name suggests: a currency in all aspects except form.
The proposed change should put to bed certain other questions. Currency notes don't offer interest, so there is no reason for the RBI's CBDC to do so. There are counterviews, most visibly from Sweden's central bank, Sveriges Riksbank, which argued that a non-interest paying CBDC would effectively place a zero lower bound on all interest rates in the economy and thereby limit monetary policy.
For India, positive rates may be a more pertinent territory but if the RBI's views are anything to go by, its CBDC will not carry any interest.
"Basically, digital currency is like a physical rupee only. There is no difference between these two," RBI deputy governor T Rabi Sankar said at the post-monetary policy media briefing on February 10.
A recent paper by the International Monetary Fund found limited competition between CBDCs and bank deposits. The IMF examined six CBDC projects at an advanced stage and noted that central banks with CBDC projects "have committed to not jeopardising financial stability and avoiding any sudden shifts to the structure of the financial system".
Measures to ensure stability include the CBDC not offering any rate of interest and a cap on the quantity of digital currency that can be held,
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