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India’s Central Bank Suggests Basic CBDC Model

cryptoknowmics.com 29 December 2021 03:15, UTC
Reading time: ~2 m

As the government of India struggles to make a final decision over crypto regulations, the country’s central bank, the Reserve Bank of India (RBI), has offered a more proactive solution. In its latest report, the RBI suggested that India must initially go for a basic model of CBDC “given its dynamic impact on macroeconomic policy.”

RBI Recommends a Basic CBDC

According to a report, titled "Trend and Progress of Banking in India 2020-21" released on Tuesday, The Reserve Bank of India (RBI) called for a basic central bank digital currency (CBDC) initially so that it has minimal impact on the monetary and the banking system.

"Given its dynamic impact on macroeconomic policy making, it is necessary to adopt basic models initially, and test comprehensively so that they have minimal impact on monetary policy and the banking system," the RBI report read.

In its basic form, a central bank digital currency (CBDC) provides a safe, robust, and convenient alternative to physical cash. Depending on various design choices, it can also assume the complex form of a financial instrument.

In comparison with existing forms of money, the CBDC can offer benefits in terms of liquidity, scalability, acceptance, ease of transactions with anonymity, and faster settlement, the central bank said.

While global central banks are now deliberating on how to implement digital currencies, moving from their initial exploratory forays, the Indian central bank questions the several aspects of design elements of a CBDC that needs to be navigated before its introduction. The design elements include whether the CBDC would be general-purpose and available for retail use, or would it be for wholesale use.

Recently, the Reserve Bank of India (RBI) called for a total ban on cryptocurrencies, arguing that a partial ban wouldn’t work. In 2018, the RBI effectively banned crypto trading in India, until the Supreme Court dismissed the ban two years later.

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