Key Highlights:
- The Reserve Bank of India may launch its first digital currency pilot programs by December.
- The central bank is also considering whether to use a centralized ledger for digital money.
- Central banks have increased their research into digital currencies over the last year.
First digital currency pilot
According to central bank governor Shaktikanta Das, the Reserve Bank of India may launch its first digital currency pilot programs by December. Central banks in China, Europe, and the United Kingdom are considering issuing digital currencies, either through commercial lenders or directly to the public.
They are referred to as central bank digital currencies, or CBDCs — legal tender in digital form — and are essentially the online equivalents of their respective fiat currencies.
That would be the digital rupee in India.
“We are being extremely careful about it because it’s completely a new product, not just for RBI, but globally,” Das told in an interview.
Distributed Ledger Technology
According to the governor, the RBI is researching different elements of digital money, including its security, influence on India’s financial industry, and how it might affect monetary policy and cash in circulation.
Das went on to say that the central bank is also considering whether to use a centralized ledger for digital money or the so-called distributed ledger technology (DLT).
DLT refers to a digital database that allows many users to access, share, and record transactions at the same time. A centralized ledger indicates that the database is owned and managed by a single organization, in this example, the central bank.
“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,” Das said.
T Rabi Shankar, his deputy, stated last month that the central bank was working on a “phased implementation strategy” for a digital currency.
Growing interest from central banks
Following a fall in cash usage and increased interest in cryptocurrencies such as bitcoin, central banks have increased their research into digital currencies over the last year.
The People’s Bank of China is leading the way, with real-world testing already underway in a number of Chinese locations. The European Central Bank and the Bank of England are also considering a digital euro and a CBDC in the United Kingdom, respectively.
CBDCs vary from cryptocurrencies in numerous ways. For starters, they would be completely regulated and overseen by a central body, generally the central banks.
Second, rather than being a tradable asset with wildly shifting prices, central bank digital currencies would behave more like fiat currencies and would be widely accepted.
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