India’s Central Bank Digital Currency (CBDC) will be an alternative to cryptocurrency, according to a senior official at the Reserve Bank of India (RBI). The announcement was made by Ajay Kumar Choudhary, Executive Director of the RBI, during a recent interview with CNBC-TV18. He explained that the digital rupee must have all the characteristics of physical currency, including anonymity.
Choudhary emphasised the importance of the digital rupee having anonymity, as it needs to be treated like physical currency. He went on to say that the digital rupee will be used as a medium of exchange in India and that offline functionality is currently being explored. The design of India’s CBDC has been the least disruptive and will not replace physical currency or the current financial system.
Additionally, Choudhary stated that the digital rupee would act as an alternative to cryptocurrencies. His statement echoes that of the RBI Deputy Governor, T Rabi Sankar, who stated that the digital rupee should be more effective and safer than cryptocurrencies.
India’s central bank began piloting its digital rupee in November last year and in December in the retail sector. Reliance Retail became the first retailer to accept digital rupees. It was revealed last month that over 50,000 users have now adopted the digital rupee in India. With over 5,000 merchants now accepting the digital currency, it is fast becoming a popular mode of payment in the retail space.
In December last year, RBI Governor Shaktikanta Das had called the CBDC the currency of the future, whilst clarifying that the country’s current instant real-time payment system, the Unified Payments Interface (UPI), relies on banks as intermediaries, whereas a CBDC functions more like physical currency notes.
Meanwhile, the RBI continues to recommend a complete ban on cryptocurrencies, including bitcoin and ether. Das has warned that crypto poses major risks to India’s financial stability, monetary system, and cybersecurity. He has also noted that it could undermine the central bank’s authority.
Recent reports suggest that the Indian government is considering an indirect ban on cryptocurrencies through the proposed Cryptocurrency and Regulation of Official Digital Currency Bill. The bill will propose a complete ban on private cryptocurrencies, while providing the framework for the creation of an official digital currency.
India’s proposed ban on cryptocurrencies has received criticism from crypto proponents who argue that such a step will stifle innovation in the digital asset space. Moreover, it has been pointed out that a ban on cryptocurrencies may not deter users from trading or investing in them. Instead, it may drive them underground, which will be detrimental to the interests of the government.
Overall, India’s CBDC is expected to be an alternative to cryptocurrencies while keeping in line with the country’s traditional financial system. With the digital rupee gaining traction, it is expected to become a more widely accepted medium of exchange in the coming years. The success of digital rupee may also influence other countries to launch their own CBDCs.
