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India may launch its pilot project on digital currency as early as December, according to the Reserve Bank of India (RBI). It is a welcome move considering that the next level of innovation is needed to expand the digital footprints in the country. The Central Bank Digital Currency (CBDC) is expected to be the same as a fiat currency and will be exchangeable with the fiat currency. Only its form will be different. It is widely meant to be used as a new payment technology with an aim to increasing efficiency and lowering costs. It can also be effectively used for welfare schemes.
The introduction of CBDC would also require careful calibration and an enabling legal framework since the current legal provisions are for currency in paper form. There will be a need for a grievance redressal mechanism in case there are issues with digital currencies. Some of the areas of concern will be the impact on monetary policy and the circulation of printed currency currently in the economy.
The trial run is a step in the right direction when the developed economies of the world have already started working on their pilot projects. According to a BIS survey, 14% of central banks have already launched pilot projects of their CBDCs, while 60% of central banks were experimenting with CBDCs. China has been working on its digital currency project since 2014. It has already started the pilot project in many cities including Chengdu, Shenzhen, and Suzhou.
As RBI moves to launch the digital currency on a trial basis, the government should also speed up the process to pass the Cryptocurrency and Regulation of Official Digital Currency, 2021 Bill on private cryptocurrencies so that India’s stance on cryptos become clear, especially when young investors as well as seasoned investors even from small cities are increasingly investing in cryptos. Time and again RBI has cautioned investors against private cryptocurrencies and speedy clearance of the Bill will help investors in making the right choice.