India’s Reserve Bank of India (RBI) is set to launch the Central Bank Digital Currency (CBDC) in fiscal 2023, announced the Union Finance minister Nirmala Sitharaman on February 1. Some experts have hailed the announcement as a progressive step towards acceptance of blockchain technology and currencies designed from it.
However, India is not a pioneer of CBDC since nine countries have already launched their digital currency. Nigeria is the latest one to launch a CBDC, the e-Naira, the first outside the Caribbean. Not only this, a whopping 87 countries, (representing over 90 percent of global GDP) are exploring a CBDC.
This figure was 35 in May 2020. Also, 14 nations including China and South Korea are in the pilot stage with their CBDCs and contemplating a possible full launch, according to Atlantic Council.
A tearing hurry?
But what differentiates India’s case with the others is that most big economies, especially US, are not in a rush to roll out their digital coins, whereas some are still debating over its feasibility. The US Federal Reserve is in the process of garnering views of the public to find out whether to provide an official tender to compete against private stable coins.
“The digital euro is in a 24-month investigation phase. If all goes well, the European Central Bank may offer it by 2025. Japan may delay a call to 2026,” wrote Andy Mukherjee for BlooombergQuint.
After weighing the pros and cons, Singapore is not keen to make its own digital currency as of now. In view of these developments, one may discern that India’s rush to roll out CBDC could be a response to the growing popularity of cryptocurrencies.
Also, one reason for the government’s hurry could be a desire to outpace China, which is showcasing the digital yuan at the Beijing Winter Olympics.
The digital currency sceptics argue that digital coin would serve the same or similar purpose which digital payment platform do. After all, the digital currencies are a mere electronic form of currency which is already in circulation.
“Central bank digital currencies are not cryptocurrencies but are an electronic form of currency issued by the government,” says Vikas Ahuja, CEO of CrossTower India.
“Even in China where 140 million individuals have signed up for the digital yuan, payment platforms such as WeChat Pay & Alipay still dominate the electronic payments,” wrote Mukherjee.
So, despite the euphoria in the run up to India’s digital currency, it is still ambiguous whether it will give any substantive value addition to the economy, or to its participants.