Key Takeaway
Around 39 lakh crores of paper money are floating on the market which could be reduced significantly if the RBI would continue to push the money in the form of CBDCs only
Not even stablecoins in the market can match the reliability that CBDCs are going to provide to their stakeholders.
RBI would have to give 100% cover for customers’ savings as the central bank cannot default
has been far and wide over a span of a few years.
The Covid-19 years gave enough time for the people of India to learn about this new currency and move towards the unavoidable adoption of blockchain technology. On the other hand, the government had shown hesitancy in embracing cryptocurrencies publicly but eventually that hesitation is converting into acceptance and acceptance into implementation.
Earlier this month, the government of India started testing its Central Bank Digital Currencies for trade in government securities. India’s CBDC Pilot Project is likely to succeed followed by a mass implementation of digital currencies around the nation. To make this mass adoption possible, there is a dire need for healthy discussions and explanatory sessions from those who hold equal expertise on both blockchain and finance.
In light of these scenarios, CoinGabbar hosted its first Twitter space named ‘CBDC - Are Digital Tokens Issued By Central Bank Truly A Game Changer’, joined by those who are best in the business.
CoinGabbar hosted Dr. Aruna Sharma, a Member of RBI’s High-Level Committee, an IAS Officer, and a Digital Transformation Enthusiast in its first Twitter space. Other panelists in the session included Rohit Khandelwal, a Charted Accountant, a Company Secretary, and one of the Co-Founders of CoinGabbar along with Rohan Sharan, Founder of TIMECHAIN Labs. This Twitter space was moderated by CMA Sudeep Saxena, Co-Founder of CoinGabbar.
Let’s dive deep into understanding what exactly does CBDC mean and how will RBI structure it? We will also highlight the difference between the digital Rupee in the UPI system and CBDCs.
The most common question that people ask about CBDCs is, how is it going to change the nature of present UPI transactions as Indian Rupee is already digitalized at large? The answer to it lies in the concept of a blockchain that works towards eliminating the intermediaries involved in the transactions of money.
“The efficiency of the UPI system might reflect the Rupee as a digital currency but it is not so and banks (the intermediary bodies) are responsible for settling the transactions on your behalf. The simplest example of this could be the fact that with CBDCs - you can still hold Indian Rupee digitally without the need to have a bank account which is not possible with the present UPI mechanism.”
RBI’s concept note specifically mentioned that it would be going for an intermediatory method while implementing CBDCs. In this method, banks will be given out e-Rupees and they would be responsible to make a user base for e-Rupee out of their customers. The Indian CBDC’s nature would also be non-remunerative which means that users would not get any interest in their CBDC stored in their wallets.
Presently over 5,000 crore Rupees are spent on printing physical banknotes in the country. In this pilot project, these expenses are expected to be eliminated from the system and replaced with wholesale CBDCs securities, issued to the banks from RBI.
RBI has also decided to implement wholesale CBDCs before reaching out to retail users. The banks have started to get e-Rupees in the form of legal tenders, replacing the cash that RBI used to send to the banks. This wholesale model of CBDCs is not going to impact the retail customers of banks.
Over 65% of the transactions in India are going to get digitalized over time and it would not matter to the end customer whether the banks are settling the transactions in either cash or CBDCs. The cash would only be needed when we will withdraw it from the banks. The saved resources from digitalizing the rupee would be used to reduce the burden of transactional charges on the consumers.
Retail CBDCs are not going to be a lucrative choice for regular consumers as it does not have any incentive to hold them in personal wallets. However, international transactions could be more efficient with its implementation.
Presently the accounting part is dealt by the banks but if retail transactions move into CBDCs the accounting will shift to RBI and that could be the excess baggage that RBI is not properly equipped to take.
Problems with Retail CBDCs
Here are some of the major problems that might come while implementing retail CBDCs into the Indian economy :
With no rate of interest, the acceptance rate could go down drastically
RBI is not fully equipped to handle the accounting of all retail transactions
If the entire economy would shift to CBDCs the banks would be bound to face an existential crisis
Making CBDCs user-friendly and accessible to those who know nothing about blockchain tech would be challenging
If the role of banks is reduced, the RBI would become accountable for managing all the retail transactions
Normal banks provide customers with a cover of 5 lakh INR in case of a bank default. On the other hand, RBI would have to give 100% cover for customers’ savings as the central bank cannot default
Solutions to the Problems in CBDC Implementation
Here we discuss the possible solutions to the problems that CBDCs are likely to face in the times to come.
“The concept note from the RBI is phenomenal and no other central banks in the world have gone to this detail. It aims to achieve the same properties as physical cash.” - Rohan Sharan, Founder, TIMECHAIN Labs.
Making CBDCs Easy to Access
Making CBDCs efficient and easy to access for retail transactions would be a challenge for RBI and it should outsource the retail side of the CBDCs to NPCI. National Payment Corporation of India holds adequate experience in user-centric products and could enable RBI to amass the implementation.
Multiplier Effect on Reducing Paper Money
Around 39 lakh crores of paper money are floating on the market which could reduce significantly if the RBI would continue to push the money in the form of CBDCs only. As money is going to travel significantly faster in the economy with the implementation of CBDCs, a higher multiplier effect is likely to be registered.
The amount of money that RBI pushes is going to go down significantly because of the efficiency of the system.
CBDCs while operating in the market will make significant impacts on the fiscal management of any country. Economies prints money at times to regulate inflation and CBDCs can go a long way in contributing to overall efficiency. It is something very attractive for CBDCs to emerge in a strong way.
Dr. Aruna Sharma, Ex-IAS Officer, Member of RBI’s High-Level Committee.
The point of discussion on the international forum is how regulators can track the usage of CBDCs and how the misuse of a decentralized currency can be stopped. The real challenge in minoring cross-border transactions is to do so without compromising the privacy of users.
Enacting a new regulatory code for the proper regulation of International transactions of CBDC will become the need of the hour and RBI is empowered to do so without the need to change anything in the legislation.
Indian CBDCs are going to come with zero downtime, zero frauds, zero losses, and high throughput for transactions. All these features of the CBDCs will be facilitated by blockchain technology and this could create a new standard in global trade.
Not even stablecoins in the market can match the reliability that CBDCs are going to provide to their stakeholders. If made available for retail use, Indian crypto exchanges might adopt to e-Rupee as soon as possible. This would replace USDT or BUSD which centralized players use to maintain liquidity in their exchanges.
However, it is only when the INR to INR transactions gain popularity, that things will change in favor of the Indian Rupee. We as a country have to start working towards making Rupee the mode of payment for our global trade and CBDCs could be an efficient tool to enable this for us.
The Twitter session held by CoinGabbar enabled the panelists to dive deeper into different aspects of CBDC implementation. However, our keynote speaker Dr. Aruna Sharma concluded with an emphasis on the fact that there is no need for RBI to hurry up towards launching retail CBDCs until the key challenges in front of them are addressed suitably.
Contrasting to this, our speaker and Co-Founder of CoinGabbar, CA Rohit Khandelwal was rather excited about the changes that retail CBDCs can bring into our economy. Rohit said that he is eagerly waiting for the retail CBDCs implementation in the country. Rohan concluded his views by asking the community to keep contributing towards building better instruments of implementation while we are waiting for the RBI to take its decision.
“CBDCs are not going to be an effort on one part, it is going to be a collaborative effort by the part of regulators, blockchain enthusiasts, policymakers, and everybody who is part of this ecosystem need to contribute before we actually go ahead with CBDCs in a big ecosystem that can affect the economy. But one thing is for sure CBDCs are going to make a lot of changes.”
CMA Sudeep Saxena, Co-Founder, CoinGabbar
