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CBDC: Necessary to adopt basic models initially, crucial questions need to be addressed, say RBI report

Central banks across the globe are now deliberating on how to implement CBDCs, moving ahead from their initial exploratory forays, the RBI report says.

December 28, 2021 / 04:56 PM IST
The RBI report highlighted the benefits of CBDC.

The RBI report highlighted the benefits of CBDC.

India’s progress in payment systems will provide a useful backbone to make a state-of-the-art central bank digital currency (CBDC) available to its citizens and financial institutions but some crucial questions need to be addressed before its introduction, said the Reserve Bank of India (RBI) in a report.

"Given its dynamic impact on macroeconomic policy making, it is necessary to adopt basic models initially, and test comprehensively so that they have minimal impact on monetary policy and the banking system," said the RBI's Trend and Progress Report released on December 28.

However, there are some crucial questions that need to be addressed before launching CBDC, the report said.

These include whether the CBDC would be general purpose and available for retail use or would it be for wholesale use, the RBI report said. Also, in a country like India, the decision about distribution architecture, i.e., whether CBDC would be issued directly by the central bank or through commercial banks, needs to be carefully weighed, the RBI report said.

"Gauging magnitude of issuance/ distribution will also help in identifying the appropriate underlying technology best suited to handle such operations," the report said.

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Also, the RBI report highlighted the benefits of CBDC.

"In its basic form, a central bank digital currency (CBDC), provides a safe, robust, and convenient alternative to physical cash. Depending on various design choices, it can also assume the complex form of a financial instrument," the report said.

Further, the report said in comparison with existing forms of money, CBDC can offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement.

Central banks across the globe are now deliberating on how to implement CBDCs, moving ahead from their initial exploratory forays, the RBI report said.

The RBI is in the process of rolling out CBDC while it has expressed strong concerns on the private virtual currencies citing macroeconomic issues.
Moneycontrol News
first published: Dec 28, 2021 04:56 pm
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