What is e₹ (Digital Rupee)?
Reserve Bank of India 🇮🇳 has issued a concept note about Central Bank Digital Currency (CBDC) to create awareness.
Read on to know more…
India’s current payments & settlements network include:
🔸Real Time Gross Settlement (RTGS)
🔸National Electronic Funds Transfer (NEFT)
🔸Immediate Payment Service (IMPS)
🔸Unified Payments Interface (UPI)
source:google
RBI has been exploring the pros and cons of introduction of CBDC (Digital Rupee (e₹)), with minimal or no disruption to the current financial system.
Digital Rupee (e₹) is SIMILAR to paper currency.
🔸Exchangeable with the existing currency
🔸Accepted as a medium of payment
🔸Is a legal tender and a safe store of value.
🔸CBDCs will appear as liability on a central bank’s balance sheet.
Why e₹?
– RBI has consistently highlighted risks (financial and macroeconomic stability) related to the cryptocurrencies.
– e₹ aims to provide the public with benefits of virtual currencies while ensuring consumer protection by avoiding risks of private virtual currencies.
source:google
5 Key Design Considerations of CBDC:
- Wholesale CBDC and/or Retail CBDC
- Direct, Indirect or Hybrid model
- Token-based or Account-based
- Remunerated or Non-remunerated
- Degree of Anonymity
- Wholesale CBDC (CBDC-W) & Retail CBDC (CBDC-R)
CBDC-R:
Meant for private sector, non-financial consumers & businesses.
Its an electronic version of cash.
CBDC-W:
Meant for restricted access to select financial institutions for the settlement of interbank transfers.
- Direct, Indirect or Hybrid model
Direct Model
Central bank is responsible for managing all aspects of the CBDC system (issuance, account-keeping & transaction verification).
source:google
🔸Indirect Model
– Central bank issues CBDC to consumers indirectly through intermediaries.
– Any claim by consumers is managed by the intermediary as the central bank only handles wholesale payments to intermediaries.
– This is similar to the current baking system.
source:google
Comparison of Direct, Indirect & Hybrid Models of CBDC:
3. Token-based or Account-based
🔸Token-based CBDC:
-Like banknotes – whoever holds the tokens, owns them.
-Receiver has to verify the token.
🔸Account-based CBDC:
-Requires maintenance of record of balances & transactions of all holders.
-Intermediary verifies the token.
source:google
🔸Token-based CBDC is being considered for retail (CBDC-R) as it is closer to cash. And account-based CBDC is being considered for wholesale (CBDC-W).
🔸Will CBDC have centrally controlled database or a Distributed Ledger Technology; is yet to be decided.
- Remunerated or Non-remunerated
A ‘non-interest’ bearing CBDC is being considered – with the logic that physical cash does not carry any interest.
Impact of CBDC on key monetary variables:
- Degree of Anonymity
Reasonable anonymity for small value transactions similar to anonymity associated with physical cash is being considered as an option for Retail CBDC (CBDC-R).
Summary of the CDBC choice:
source:google
Other important considerations:
🔸Wallets of token-based CBDC – custodial or non-custodial?
🔸The CBDC needs to be available for people without internet connectivity – this comes with a risk of ‘double-spend’ problem.
🔸Usage of Smart Contracts for making CBDC ‘programmable’.
🔸Different network compatibility during cross-border CBDC transactions. Example Link.
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Read the full concept note on CBDC by RBI here:
