Union Finance Minister Nirmala Sitharaman announced in her Budget speech on Tuesday, February 1, that the Reserve Bank of India (RBI) plans to introduce digital rupee using blockchain. “Digital currency will lead to a more efficient and cheaper currency management system. It is therefore proposed to introduce digital rupee using blockchain and other technology to be issued by the Reserve Bank of India starting, 2022 and 2023,” she said.
The Union government had told the Lok Sabha last year that the RBI is working out a strategy for phased implementation of Central Bank Digital Currency by examining use cases, in order to avoid any disruptions. Central Bank Digital Currencies (CBDCs) are legal tender created by the central bank of a country, in digital form. It further said that the RBI moved a proposal in October 2021 seeking to amend the Reserve Bank of India Act, 1934 to enlarge the scope of the definition of ‘bank note’ so as to incorporate currency in digital form.
The central bank has been working on modalities for central bank digital currency. However, it has expressed reservations on private cryptocurrencies. RBI Governor Shaktikanta Das has already said that cryptocurrencies are a very serious concern from the macro-economic and financial stability perspective. India joins other countries that are experimenting with digital legal tender, including the US, China and Europe with digital dollar, e-yuan and digital euro respectively.
Earlier, the Indian government was slated to introduce new regulations for cryptocurrency during the Winter Session of Parliament, which kicked off on November 29. The session ended without seeing the 'The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021'.
Reacting to the announcement, Harish Prasad, Head Of Banking, India, FIS said that it was a much-awaited and positive move. “This will trigger a wave of preparatory activity amongst retail payments providers and apps to offer payment mechanisms using the Digital Rupee, along the lines as has been seen in China with major digital payments players and apps offering digital Yuan payments via their apps,” he said.
“What will be keenly awaited though is clarity on digital currency owner identification and any associated reporting requirements for payments apps, and whether the anonymity that physical currency enables is an attribute that will be supported in the Digital Rupee," he added.
Rajosik Banerjee, Partner and Head, Financial Risk Management, KPMG in India, said, “Digital Rupee using blockchain technology will lead to stable, efficient, regulated payments and settlements and lowered transaction cost. This initiative is expected to boost the digital economy and reduce leakages by lowering dependency on cash.”