Prime Minister Narendra Modi said that the central bank digital currency (CBDC), which will be issued by the Reserve Bank of India, will be exchangeable with the physical rupee, in a virtual address to Bharatiya Janata Party (BJP) members on February 2.
Modi added that digital payments of all kinds will be safe and free of risk because of CBDCs.
“Digital rupee will be just like physical rupee and will be issued by the RBI. It will be completely controlled and monitored. The development of the Global Digital Payment System will also be aided by this project,” he noted while suggesting that problems in printing cash, its handling and distribution will be addressed by CBDCs.
PM Modi’s remarks are an indicator of the Indian government’s policy outlook. His statement, coupled with the budget announcement by Finance Minister Nirmala Sitharaman, suggest that the government is enthusiastic about the prospects of CBDC which will start being issued by the central bank in the financial year 2022-23.
What did the annual budget have on CBDCs?
FM Nirmala Sitharaman announced that the digital rupee, which will use blockchain technology, will be issued by the RBI in 2022-23 in her Budget 2022-23 speech.
“Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” Nirmala Sitharaman said.
It was the first official announcement specifying a timeline for its launch. The project has been in the works for quite some time now. The CBDC is the government’s attempt to take advantage of the benefits offered by blockchain technology and to also discourage the use of private crypto like Bitcoin as currency.
According to the Atlantic Council, over 90 countries including the US, China, Russia, and many in the EU are exploring CBDCs. So far, only nine of these countries have launched a digital currency.
Why is it taking so long to launch CBDCs?
The government first announced its plans to roll out CBDCs in January 2021 to avoid the damaging consequences of cryptocurrencies.
The progress has been sluggish. The RBI governor Shaktikanta Das said that the central bank needs to safeguard CBDCs from risks of digital frauds and cybersecurity before rolling them out in 2021. He was speaking at a media interaction after announcing RBI’s monetary policy last year.
Das explained that the central bank had major concerns around fake Indian currency notes a few years ago. “Similar things can also happen when you are launching CBDC,” he asserted, adding that the RBI will be careful and take preemptive steps to prevent fraud. He also said that the bank recognises the need for a robust system to prevent cyber attacks.
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