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Reserve Bank of India governor Shaktikanta Das said that RBI will be initiating a pilot exercise by the end of this year on central bank digital currency (CBDC). CBDC is a virtual digital currency and is the same as the currency issued by the central bank. Das said that the bank is being extremely careful as it is a new product not only for RBI but for the world.  The governor said that the security of the digital currency (CBDC) and its integration is the most critical task. He said that the possibility of cloning of CBDC must be avoided, meaning that RBI cannot allow perpetrators to clone CBDC in the future. Das said that the bank is examining various aspects of CBDC on financial sector, monetary policy, and currency circulation. 

The governor in an interview with TV channel said that RBI at present  has a choice between a digital distributed ledger technology (DLT) or a centralized ledger technology to run the CBDC. Das said that the central bank is checking whether to adopt wholesale and sequentially go to retail later on, or should it start in a localized area with retail plus wholesale. Earlier RBI deputy governor had touched upon that  several countries have implemented specific purpose CBDCs in the wholesale and retail segments. He then had added that going forward, after studying the impact of these models, launch of general purpose CBDCs shall be evaluated by the RBI. RBI is yet to decide on whether the central bank will issue the digital currency or it will be done through the banking system.

CBDC has been making the headlines ever since the central bank’s deputy governor T Rabi Shankar announced that RBI is working towards  a phased implementation of strategy and examining use cases of CBDC.  As per RBI, CBDC is a digital or virtual currency but cannot be compared to the private virtual currencies (crypto) that have mushroomed over the last decade. CBDC is the same as currency issued by a central bank but takes a different form than paper (or polymer). It is sovereign currency (unlike cryptocurrencies) in an electronic form and it would appear as liability (currency in circulation) on a central bank’s balance sheet. The underlying technology, form and use of a CBDC can be moulded for specific requirements.

During the interaction, the governor expressed RBI’s concern around crypto currency due to its volatile nature.  “There are huge amounts of risks that impact on financial stability, and we have shared our concerns with the government. So, the government will take the necessary policy decisions in that regard,” he added.  Last week finance minister Nirmala Sitharama said that  the proposed legislation on cryptocurrencies has been tabled before the union cabinet. It is worth noting that the central government doesn’t have any information on the total number of crypto exchanges platforms in India or any crypto exchanges’ involvement in money laundering scams and narcotics drug trafficking. 

He further added that DLT or the blockchain technology on top of which cryptocurrencies run grows irrespective of private cryptocurrencies. “This technology does not need a private cryptocurrency to grow. It can grow on its own. In fact, it is already being used by various corporations in India, and we are also working on that,” he added.