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While regulatory clarity on the issue of cryptocurrencies remains elusive, India is stepping up efforts to create its own central bank digital currency [CBDC]. According to T Rabi Sankar, Deputy Governor of the Reserve Bank of India, a potential CBDC model could be launched by the end of 2021.
During a recent press meet, the exec claimed that the RBI is currently evaluating the scope, technology, distribution, and validation mechanism.
“These are extremely involving technology and business choices that one has to make. So, it will be difficult to pin a date on it (central bank digital currency) but we should be able to come out with a model in the near future, probably by the end of this year.”
The Deputy Governor had previously stated that a CBDC roll-out will be done in a phased manner. However, his latest statements imply that CBDC trials or a pilot program for wholesale and retail segments will be possible shortly.
A question of timeframes
Is it really possible though? Consider China, for example.
According to reports, China has been exploring CBDCs since 2014. However, it is only now that the world is hearing about the advanced stage of its development. The country spent more than two years developing its Digital Currency Electronic Payment [DCEP] system, which is now in trial mode.
The People’s Bank of China [PBOC] approved hypothetical use tests of the digital yuan in several regions in April 2021, including the Beijing-adjacent Xiong’an New Area, Shenzhen, Suzhou, Chengdu, and the Beijing 2022 Winter Olympic Games locations.
Despite several trials, the Chinese government has yet to confirm a date for the digital yuan’s implementation. On the contrary, bank officials in India believe a model will be developed by the end of the year.
Rushing to the finish line
Even if this is a realistic goal for India, it can be argued that there is still a long way to go before a launch.
When compared to virtual currencies, the RBI has remained more comfortable with the concept of a CBDC. Sankar has previously stated that if virtual currencies gain acceptance, “national currencies with limited convertibility are likely to face challenges.”
As a result of such reasoning, we may see a CBDC model by the end of the year, but it may be a rushed job given that India is still in the early stages of implementing a new financial system.