The Reserve Bank of India will issue a digital currency in the upcoming fiscal.
The "Digital Rupee" will help boost the digital economy, Finance Minister Nirmala Sitharaman said in her Budget 2022 speech on Tuesday. The Central Bank Digital Currency will make the currency management cheaper and more efficient.
The RBI has been working on developing its own digital currency for at least two years. In December 2021, RBI Deputy Governor T Rabi Sankar said a lot of work has already been done on the wholesale side of the digital currency, while the retail side was slightly more complicated and would take more time.
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"CBDCs are desirable not just for the benefits they create in payments systems, but also might be necessary to protect the general public in an environment of volatile private virtual currencies," Sankar had said in a speech in July 2021.
According to Sankar, there are clear advantages of CBDCs over other digital payments systems. For one, payments using CBDCs are final and reduce settlement risk. "Imagine a UPI system where CBDC is transacted instead of bank balances, as if cash is handed over—the need for interbank settlement disappears."
CBDCs could also enable more real-time and cost-effective payments across borders.
Also, in a country like India, where the currency-to-GDP ratio is high, CBDCs can potentially help replace cash usage and reduce the cost of printing, transporting, storing and distributing currency, Sankar said.
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