By Sathvik Vishwanath
India has made impressive strides towards innovation in digital payments. The country has enacted a separate Payment and Settlement Systems Act, which has enabled the proper development of the payment ecosystem in the country.
Current state-of-the-art payment systems that are affordable, accessible, convenient, efficient, safe, secure and available 24x7x365 days a year, are a matter of pride for the nation.
The most widespread use and benefit of e-rupee was expected to result from the token-based variant in the retail segment. With this in mind, the WG (Working Group set by the Reserve Bank of India) recommended several pilot projects with phased implementation to serve as a learning experience.
The e-rupee specific purpose, one each in the wholesale and retail segment, could be implemented with little or no market disruption and help unlock the benefits of CBDC.
For wholesale CBDC (CBDC-W), a phased implementation strategy has been proposed for the CBDC3 model based on a wholesale securities settlement (direct) account. For retail CBDC (CBDC-R), a token-based CBDC4 model has been proposed with a tiered architecture where the Reserve Bank will only issue and disburse e-rupee while distribution and payment services will be delegated to banks.
Given that traceability, privacy and transaction costs differ for each type of CBDC, resulting in different cost impacts for each stakeholder, further research into the technological aspects of CBDC implementation at the national level was recommended.
The government announced the launch of the Digital Rupee - Central Bank Digital Currency (CBDC) from the fiscal year 2022-2023 in the Union Budget tabled in Parliament on February 1, 2022.
The budget announcement said that the introduction of the CBDC will provide a major boost to the digital economy. The budget also set out broad goals to be achieved by introducing a CBDC using blockchain and other technologies as a "more efficient and cheaper currency management system.
CBDC is a sovereign currency issued by central banks in accordance with their monetary policy. It appears as a liability on the central bank's balance sheet.
It must be accepted as a means of payment, legal tender and a secure store of value by all citizens, businesses and government authorities.
It is freely exchangeable for money and commercial bank cash and is a fungible legal tender whose holders do not need to have a bank account.
The CBDC should be developed in India as a large-scale, enterprise-class digital platform that can have the following features: Highly scalable to support very high transaction volume and speed without performance degradation; robust to ensure the stability of the financial ecosystem and tamper-resistant access control protocols and cryptography for data security, CBDC and transactional data.
It should also have cross-platform support to enable the development of a wide range of client applications using CBDC for financial services and have the ability to integrate with other IT platforms in the financial ecosystem must be at the heart of the platform design.
The digital currency should also have a highly developed fraud monitoring framework to prevent financial fraud from occurring.