The Reserve Bank of India is planning to launch its first ever digital currency trial programs by the end of this year (2021).
As announced by the central bank governor Shaktikanta Das on Friday, the Reserve Bank of India plans to launch the trial programs by the month of December this year. Das informed that the RBI is working on a phased implementation strategy for the same.
Moreover, the RBI began considering the trials after a decline in usage of cash and growing interest among people about cryptocurrencies.
The RBI has advocated the use of a digital currency, also referred to as central bank digital currencies (CBDC), as fiat money, in order to reduce the dependency on paper notes and reduce the load on transactions.
The digital currency is proposed to be a legal tender in online form. In other words, the digital rupee will be the online version of the fiat currency that is in circulation.
In addition, the CBDCs differ from cryptocurrencies in several important ways – first, they would be fully regulated and under a central authority, typically the central banks.
Second, instead of being a tradable asset with wildly fluctuating prices, central bank digital currencies would function more like their fiat counterparts, and would have widespread acceptance.
The governor further informed that the RBI is studying various aspects of the digital currency including its security, impact on India’s financial sector as well as how it would affect monetary policy and currency in circulation. In addition, the RBI is being extremely careful about it because it is completely a new product.
Das added that the central bank is also exploring the choice between having a centralized ledger for the digital currency or the so-called distributed ledger technology system (DLT).
Regarding DLT, it refers to a digital database that allows multiple participants to access, share and record transactions simultaneously. A centralized ledger means the database is owned and operated by a single entity, in this case, the central bank.
Furthermore, a number of leading economies including the UK, China and Europe are currently exploring the digital currencies that would be issued by them, either to commercial lenders or to the public directly.