OPINION | Success OF CBDCs Crucial To Global Digital Economy: How India Can Set An Example

If we look at CBDCs from a progressive point of view, the future looks bright.

India’s tryst with the central bank digital currency (CBDC) began on November 1, 2022, when the Reserve Bank of India (RBI) launched the pilot for the Digital Rupee for the wholesale segment. Digital Rupee was launched for the retail segment exactly one month later with a handful of banks chosen for the CBDC pilot project. As per the latest report from People Research on India’s Consumer Economy (PRICE), India’s middle-class population is currently 31 percent of the total population and is expected to double by 2047, provided that economic and political reforms achieve the desired outcome.

India’s middle-class population provides a real-world mass use case for digital currency and the already existing robust digital infrastructure will ensure the reach of CBDC to the remotest part of our country. Financial inclusion in India still stands at 56.4 percent (as per RBI Financial Inclusion Index 2022), and CBDC provides an excellent opportunity for the unbanked population to be a part of India’s ambitious digital banking revolution.

Let’s take a look at some important developments around CBDCs around the globe and connect the dots to get the real picture.

More than 100 nations are keen on launching their digital currencies, with over 10 countries having already launched their digital currencies. Almost 15 nations are already running their CDBC pilot projects. Bahamas and Nigeria have already launched nationwide digital currencies called Sand dollar and eNaira, respectively. China was one of the first large economies to launch the Digital Yuan, which witnessed immediate success owing to the high digital penetration in the country.

Countries like Ghana, Canada, UAE, Saudi Arabia, Sweden, Uruguay, Australia, Hong Kong, Singapore, and Kazakhstan are working aggressively towards their digital currencies.

CBDCs can significantly cut down the cost for central banks which goes into printing, transportation, and storage of physical currencies. The brick-and-mortar model of banking will be less significant in a world where digital currencies are widely used for day-to-day transactions. CBDCs will not only cut down the number of financial frauds but will address burning issues like money laundering and terror financing. 

What’s cooking in India?

India is moving swiftly towards the mass adoption of digital currencies. CBDC will be issued to the public in the same denominations as the physical currencies and will be stored in a digital wallet provided by qualified banks. Few public sector banks like SBI have already started educating customers on the benefits of eRupee and ways to link their existing bank accounts to their CBDC wallet.

The digital wallet will have a unique ID linked to the customer’s KYC and the transactions can be done from person-to-person (wallet-to-wallet). Since the eRupee is backed by a sovereign guarantee, the transactions will be fully secure and under the lens of the central bank.

It will be interesting to see if India’s big institutions will react to the use of digital currency because retail users will provide a boost to the volume of digital transactions and institutional users will add to the value of CBDC transactions.

CBDC is different from digital assets

CBDCs are different from digital assets like Bitcoin and Ethereum, which are not equivalent to sovereign currencies in most countries, including India. A digital asset is an asset class similar to real estate, gold, and stocks that can be leveraged by users to achieve their financial goals as per their risk appetite. A CBDC is a widely accepted payment mechanism, which is not the case with digital assets.

How is the future looking?

If we look at CBDCs from a progressive point of view, the future looks bright. CBDCs have the power to revolutionize the global financial system, international remittances, and foreign exchange process. 

The Indian government emerged as a leader in bringing UPI architecture on a global scale after the tremendous response it received within India. 

In fact, conversations to extend the reach of UPI payments to countries like Singapore, Bhutan, UAE, Oman, and other nations are already underway. 

Similar to UPI technology, India has a strong potential in leading the world in the CBDC category as well. India being the largest populated country in the world, can provide a level playing field for the CBDC pilot project. 

I strongly believe that it is possible to drive the mass adoption of CBDCs through an efficient public-private partnership on a global level and India can lead in this regard.

(The author is the founder of Liminal, digital wallet infrastructure platform)

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