In a paper published on Friday, the Reserve Bank of India suggested a staged trial of its interpretation of a Central Bank Digital Currency.
India’s central bank revealed its goals for a digital rupee, or “e-rupee,” in a document that was released as a “concept note.” Additionally, it provided justification for the creation of a CBDC (central bank digital currency) and described the many stages of testing that would take place.
The paper writes: “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. CBDCs are being seen as a promising invention and as the next step in the evolutionary progression of sovereign currency.”
The RBI intends to introduce the e-rupee as an alternate type of currency issued alongside banknote after a limited test program. The e-rupee would, according to the document, also compete with cryptocurrencies.
According to the central bank, the unrestricted usage of cryptocurrencies puts India’s financial and macroeconomic stability at risk, making it harder for the government to set and enforce monetary policy and highlighting the necessity for a CBDC.
By avoiding the negative social and economic effects of private virtual currencies, CBDCs will ensure consumer protection while bringing the benefits of virtual currencies to the general public, said the RBI.
One CBDC would be used by consumers to make retail payments, and the other would be used to settle transfers between banks and wholesale transactions. The central bank is considering releasing two versions of the CBDC. According to the RBI, a CBDC might ultimately increase the reliability, strength, and efficiency of payments.
The RBI acknowledged that it could be preferable for small transactions to remain anonymous, much like in cases where cash is used. However, it noted that ensuring privacy would be difficult.
The Indian authorities initially revealed its intentions to establish a CBDC back in February, claiming the technology would significantly benefit the nation’s economy.