Digital currency proposed by RBI to speed up transactions, reduce cost of cash: Report

A report by Deloitte said on Wednesday that the proposed central bank digital currency (CBDC) to be issued by the Reserve Bank will play a key role in improving transaction speed and reducing the cost of cash.

Reserve Bank of India is planning to come up with a central bank backed digital currency using blockchain technology in 2022-23.

As a financial services innovation, CBDCs could play a key role in shaping the ‘transfer of value of the future’, the report said, adding that most central banks around the world are now planning to launch their own national digital currencies. are in various stages of evaluation.

Monish Shah, Partner, Deloitte India, said, “CBDCs provide a more flexible, innovative and competitive payment system for households, businesses and economies, due to their inherent potential to transform the way value is transferred.

Currently, most security clearing and settlement processes have a multi-day lag, he said, adding that “with the introduction of the digital rupee there will be a significant increase in efficiency and a reduction in the associated reconciliation cost”.

The report states that CBDCs can enhance the efficiency and effectiveness of jurisdictions’ payment systems by ensuring their users have access to secure digital money. CBDCs would provide users with a sovereign option compared to other less secure digital instruments, which could lead to less reliable payments, a relatively volatile store of value and potentially worsen monetary and financial stability.

“This may be particularly important in the future as the use of cash depreciation and new forms of ‘value transfer options’ become more widely used throughout the payment cycle,” it said.

Globally, efforts by central banks towards the development of CBDCs are very dynamic, and with the COVID-19 pandemic, the momentum behind these efforts is likely to increase even further. APAC jurisdictions have been at the forefront of this area, with seven of the top ten global CBDC projects operating in the APAC region alone.

The report titled ‘Central Bank Digital Currency: Building Blocks of the Future of Value Transfer’ said, “While China was the first country to begin its journey in 2014, India has been the latest to initiate research around CBDCs.”

The report said that in 2021, the RBI announced a phased implementation strategy to introduce CBDCs. RBI has indicated that it will start its first digital currency testing program by the end of 2021.

The report said the RBI is studying various aspects of introducing CBDCs, including security, impact on financial institutions, monetary policy and currency in circulation.

“It is expected that pilots will be conducted for both the retail and corporate sectors,” the report said.

The report further noted that as central banks begin their inevitable digital journey with CBDCs, this will change the way global and domestic economies operate and have a significant impact on commercial banks, their profitability and operations. Read also: Chhattisgarh announces old pension scheme for government employees, follows in Rajasthan’s footsteps

It also discusses the various impacts of CBDCs on financial services players covering profit from CBDCs, the need to maintain compliance, develop infrastructure and interfaces, verify transactions, proactively prevent cyber threats, tax Navigating changes and reorganizing for change, etc. Read also: Recently launched Apple iPhone SE 2022 or iPhone 13: Which smartphone should you buy?

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