Speaking on Budget 2022, finance minister Nirmala Sitharaman has announced plans to introduce a fiat cryptocurrency within the next two years.
“Introduction of Central Bank Digital Currency will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is therefore proposed to introduce a digital Rupee using blockchain and other technologies to be issued by the Reserve Bank of India starting 2022-2023,” said Sitharaman.
Welcoming the move, Paytm founder and CEO Vijay Shekhar Sharma tweeted, “#CBDC जय हो ! What an incredible announcement of #Budget2022!”
Nischal Sharma, founder and CEO of Binance owned crypo exchange WazirX said, “Glad to know that RBI will now start getting deeper into crypto. Hope to see banks start getting involved with crypto industry as well.”
Where Is India In The CBDC Race
According to Atlantic Council, 87 countries representing over 90% of global GDP are currently exploring a CBDC in contrast to May 2020, when only 35 countries were considering a CBDC.
So far, 9 countries have launched their CBDCs while 14 countries including China and South Korea are in the pilot stage.
From the ease of issuance to reducing the settlement risk in the financial system, the CBDC offers a slew of advantages over paper or polymer currencies. In fact, it is now deemed as digital currency 2.0 or the future of currencies.
According to Chetan Ahya, chief economist at Morgan Stanley, “Efforts to introduce CBDCs are gaining momentum, with as many as 86% of the world’s central banks exploring digital currencies.”
The future of CBDC in India has so far been a bit ambiguous. How the RBI would launch it remained a puzzle for a long time with no clear roadmap in sight. The central bank governor Shaktikanta Das had announced in August 2021 that CBDC trials could take off in about three months.
Although India was in no hurry to ‘go the CBDC way’, there might have been specific reasons for this announcement. Speaking at The Global Fintech Festival on September 28, 2021 T Rabi Shankar, deputy governor of the RBI, pointed out that the adoption of digital payments became instantaneous within the country, but the environment for cross-border payments stagnated for decades.
“The factors cited are usually the following – the need for exchange rates, time-zone differences, varying regulatory and legal requirements across different jurisdictions and more. Fintech can surely solve these frictions – platform-based solutions can make real-time price discovery possible even for retail-sized transactions,” said Rabi Shankar.
“CBDCs, if both countries have it, can make time-zone differences disappear by replacing bank settlements with currency delivery, which can take place even if the payment systems are closed,” he added.
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