Digital Rupee's Scope Can Be Wider, But Can't Replace Physical Currency: SBI Chairman

SBI Chairman Dinesh Khara said, "For a country of our size, CBDC cannot replace physical currency. There is a scope and case for co-existence of both physical currency and digital rupee,"

State Bank of India Chairman Dinesh Khara on Wednesday said that the scope of the digital rupee can be further widened with the inclusion of financial institutions, such as mutual funds or insurance services. The RBI launched the pilot run for retail digital Rupee (e₹-R) on December 1, 2022. 

Khara was speaking at the Financial Inclusion and FinTech Summit organised by the Confederation of Indian Industries (CII) on July 19. News website MoneyControl quoted him as saying, "The scope can be further enlarged by including financial institutions such as mutual funds or insurance services, when they actively participate in settlements of government securities (G-Sec) or state developmental loans, is a very valid case. CBDC will take away a part of the physical currency circulation, as well as bring efficiency in settlements."

He also noted that after the recent pilot of the digital rupee, during which a liquid network was created across the country, there was decent traction in retail settlements as well. 

"Considering the reduced cost of currency management and formalisation of the country's economy, this will go a long way," said the SBI chief. However, he pointed out that CBDC would not be a substitute for physical currency. "For a country of our size, CBDC cannot replace physical currency.  There is a scope and case for the co-existence of both physical currency and digital rupee," he added. 

Khara also said that the inclusion of CBDC is anticipated to help boost the increasing GDP of the country.

The RBI’s e₹-W pilot was also rolled out on November 1, 2022. Currently, it is being used for the settlement of secondary market transactions in government securities.

Last week, SBI Chief said that the scope of Central Bank Digital Currency (CBDC)-Wholesale (e₹-W) can be expanded by including settlement of primary auctions of Government Securities, FIIs participating in the debt segment, and mutual funds, among others. 

On Tuesday, after the G20 finance ministers and central bank governors meeting, RBI Governor said that during the meeting potential of RBI's CBDC was recognised in terms of providing ease of cross-border transactions.