[Budget 2022] Central Bank Digital Currency to be issued by RBI in 2022-23, says FM
During her Union Budget 2022 speech, Finance Minister Nirmala Sitharaman revealed the government has proposed to introduce "a digital rupee using blockchain and other technologies issued by The Reserve Bank of India (RBI), starting 2022-23."
The digital rupee will be a Central Bank Digital Currency (CBDC), and Sitharaman said it will "give a big boost to the digital economy." Such a digital currency would lead to an efficient and cheap currency management system, she added.
A CBDC is the virtual form of a government’s fiat currency, and is issued and regulated by local authorities. It is run on a digital ledger system, which may or may not be blockchain-based. In India's case, Sitharaman's announcement indicates it will be blockchain-based.
However, the idea of launching a CBDC is not new. For the last few years, the RBI has been toying with the concept and had been looking for a phased implementation for CBDCs this year.
Cryptocurrency, which is also powered by blockchain technology, has long aspired to act as digital currency, but it is increasingly seen as assets for investment or tokens for performing transactions on blockchains.
CBDCs, in contrast, are meant to be used as digital currency. For instance, the digital currency equivalent of INR could theoretically be used as legal tender to make payments, and transactions will be recorded on a digital ledger.
An Indian CBDC could be used for programmable payments between various parties, faster cross-border remittances, retail transactions, and perhaps even offline payments through secure, physical wallets.
Although China has been pioneering CBDC research and India is yet to gain momentum in this space, the local payment infrastructure is robust, highly-developed, and poses a big advantage in India’s future CBDC plans.
The government is also working on a bill that aims to define, compartmentalise, and regulate crypto tokens based on their nature and use cases. However, it is still up for debate how India’s CBDC plans will impact the way it treats and regulates crypto.