The digital currency of the central bank (CBDC) of India has recently reached a significant milestone, with 5 million active users. This development represents an important step in the country’s journey towards the adoption of digital currency.
However, the Governor of the Reserve Bank of India (RBI), Shaktikanta Das, clarified that there will be no rush to implement the CBDC on a large scale. Gradualness, according to Das, is essential to ensure that the launch of the CBDC happens in a safe, effective, and smooth manner.
The Context of CBDCs at a Global Level and the Advancement in India
Before delving into the situation in India, it is useful to understand the global context in which the CBDC is placed. Central bank digital currencies are attracting the attention of numerous countries around the world, with some nations having already launched pilot versions of their respective CBDCs, while others are still in the study or development phase.
The push towards CBDCs stems from the need to modernize payment systems, increase financial inclusion, and respond to the rise of private cryptocurrencies.
CBDC represent a digital form of fiat currency issued by a central bank, designed to coexist with traditional cash. However, unlike decentralized cryptocurrencies such as Bitcoin, CBDC are centralized and regulated by national monetary authorities.
India has started to seriously explore the possibility of a CBDC in recent years, partly driven by the rapid digitalization of the economy and the growing adoption of digital payments. The country, with a population of over 1.4 billion people, presents a unique opportunity but also significant challenges for the implementation of a CBDC on a large scale.
The pilot project of the Indian CBDC, named “e₹” or electronic rupee, was launched in experimental mode in some selected cities. Since its introduction, the CBDC has seen a positive response, quickly reaching 5 million active users. This milestone indicates a strong interest and potential acceptance of the digital currency by the population.
However, as emphasized by Governor Shaktikanta Das, the expansion of the use of the CBDC at the national level requires caution.
Das has stated that “there should be no rush to launch a CBDC at the system level,” emphasizing the importance of proceeding gradually to avoid systemic risks and ensure that the technology is robust and ready for large-scale adoption.
Reason for caution and the future of CBDC
The gradual approach proposed by Das reflects several concerns. First of all, there is the issue of security. The introduction of a CBDC requires an advanced technological infrastructure that is resistant to cyber attacks and fraud. An error at this stage could compromise trust in the country’s digital financial system.
Secondly, the issue of financial stability is crucial. A transition that is too rapid could destabilize the traditional banking system, as deposits could quickly move from commercial banks to the CBDC, reducing the banks’ ability to grant loans and finance the economy.
Finally, Das highlighted the need for broad consensus and coordination with all stakeholders, including citizens, banks, and businesses, to ensure that the transition to the CBDC takes place in an orderly and inclusive manner.
Despite the caution, India continues to make significant progress towards the introduction of its CBDC. The Reserve Bank of India is collaborating with several commercial banks and financial technology companies to test various aspects of the CBDC, including usability, interoperability with existing payment systems, and the effectiveness of security measures.
The success of the pilot project with 5 million active users demonstrates that the Indian population is ready for a digital change, but the path towards large-scale adoption requires time. Governor Das emphasized that “the CBDC is not just a technological issue, but also an important economic reform”.
This statement reflects the strategic importance of the CBDC not only as a payment instrument, but also as a catalyst for economic innovation and the modernization of the Indian financial system.
Conclusion
India is in a privileged position to lead the adoption of CBDCs globally, but its thoughtful and gradual approach is essential to ensure that the transition occurs smoothly.
With 5 million users already involved in the pilot project, the path is set, but patience and prudence remain at the core of the Reserve Bank of India’s strategy. In this way, India hopes to build a robust, secure, and inclusive digital financial system, ready to support the needs of one of the largest and most dynamic economies in the world.
Source: https://en.cryptonomist.ch/2024/08/26/the-cbdc-of-india-reaches-5-million-users-a-gradual-introduction-according-to-the-governor-of-the-central-bank/