What India’s CBDC Report Means for Crypto’s Future

New CBDC Report May Point to the End of Crypto in India

The Reserve Bank of India presents its concept of the digital rupee, considering its design, issuance and impacts on the existing banking system.

in Report Released on October 7, 2022, the Financial Technology Division of the Reserve Bank of India (RBI) has confirmed that it is looking into both consumer and corporate retail CBDCs and wholesale CBDCs designed to simplify interbank transfers and other wholesale transfers.

RBI is working towards a phased approach

The Reserve Bank of India formed an internal working group to provide recommendations on the design and testing of CBD. Each retail and wholesale central bank digital currency pilot will start building the currency with technology partners based on the recommendations of the working group. Next, the CBDCs will be tested in a sandbox environment to evaluate their design and functionality. Next, the RBI will test their resilience by exposing them to different stressful scenarios and then evaluate the results. If the test results are met, the RBI will launch a pilot program with as many demographics as possible. Lessons learned from the pilot will be incorporated into the final CBD design for the central bank.

In developing retail banking currencies for the central bank, the bank aims to make it more like physical banknotes where the owner is assumed to be the owner. When developing wholesale central bank digital currency, a bank will likely use an account-based system where owners are identified through transaction records rather than owning digital tokens. The bank hopes to create a trusted system that is immune to counterfeit codes and double spending.

Notably, the bank does not see the distributed ledger technology (DLT) used by the blockchain to be able to provide the required transaction throughput for large jurisdictions. Instead, she sees DLT playing a role in the hybrid CBDC architecture with both centralized and decentralized elements.

CBDC is more like money than private cryptocurrency

While the Indian government did not choose to ban cryptocurrencies but instead heavily tax the winnings, the flavor of the RBI report suggests an aversion to the asset class.

According to RBI, “the inherent design of cryptocurrencies is more geared towards bypassing well-established and regulated brokerage and control arrangements that play a critical role in ensuring the integrity and stability of the monetary and financial ecosystem.” The bank believes that the cryptocurrency undermines the country’s “macro-financial and economic stability.”

One Twitter user, who is said to be a qualified film director, said the crypto industry will likely suffer when the RBI introduces a CBDC:

Twitter users criticized the report, and some suggested that the country’s digital central banks move one step closer to a state of surveillance:

The report does not provide any planned date for the launch of central banks’ central positions. However, it stresses the importance of continued research and cooperation with international bodies such as the World Economic Forum, the International Monetary Fund, and the Bank for International Settlements.

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