India has announced that it will start testing its electronic rupee towards the end of 2021. The governor of India’s central bank Shaktikanta Das announced this in an interview with CNBC media.
That told CNBC that the Reserve Bank of India (RBI) is at least well positioned to launch pilot programs for its central bank digital currencies (CBDC) by December.
“I think by the end of the year we should be able – we might be able – to start our first attempts,” Das told CNBC.
The governor stated that the Central Bank of India is studying several aspects of its CBDC, including its security, the impact on India’s financial sector, and the impact on monetary policy and the currency in circulation.
“We are extremely careful with it because it is a completely new product, not just for RBI, but worldwide,” said Das.
The governor recognized that the security of the national digital currency is a top priority when studying several aspects of the operation of such an asset, as well as assessing technological issues. “The possibility of cloning … should be avoided,” said Das.
The said further, the central bank is examining the possibility of using a central ledger for the CBDC or the so-called distributed ledger technology (DLT).
A central ledger refers to the database operated and owned by a single entity, and in this case it is the central bank. On the other hand, Distributed Ledger Technology (DLT) is a digital database that enables multiple participants to access, share and record transactions at the same time. The majority of cryptocurrencies run on Distributed Ledger Technology (DLT).
Last month, Reserve Bank of India’s Deputy Governor Rabi Shanka said the central bank is working towards phasing out its CBDC and evaluating various issues, including the underlying technology and method of issuance. The deputy governor also announced that testing programs for wholesale and retail components of the digital currency may be possible in the near future.
Hurry to replace cash with digital currency
In January, the Bank for International Settlements conducted a survey that showed that 86% of central banks around the world are actively exploring the potential of CBCDs, 60% have experimented with the technology, and 14% are launching pilots.
So far, only five nations have fully adopted a CBDC, with the Bahamian Sand Dollar becoming widely used as the first digital currency.
China is taking the lead in the CBDC landscape and has already begun trials of its central bank digital currency, the yuan, in several cities, while the Bank of England and the US Federal Reserve are examining a digital currency for possible future adoption.
India’s central bank has been working on the idea of a national digital currency for years. In recent years, private cryptocurrencies like Bitcoin have gained popularity in India, with data showing that the country has around 15 million investors holding more than 100 billion rupees in cryptocurrencies.
The Reserve Bank of India has repeatedly raised concerns about the rise and use of crypto assets, which it wanted to ban in April 2018. However, the central bank withdrew the ban in March 2020 when the country’s Supreme Court declared the move was unconstitutional.
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