New CBDC report could mean the end of crypto in India
The Reserve Bank of India presents its concept of a digital rupee, considering its design, issuance and effects on the current banking system.
In a report released on 7 October 2022, the RBI’s FinTech division confirmed that it is looking at both a retail CBDC for consumers and businesses and a wholesale CBDC designed to streamline interbank and other wholesale transfers.
RBI is working towards a phased approach
The RBI has formed an internal task force to provide recommendations on CBDC design and testing. Each pilot for the retail and wholesale CBDCs will start by building the currency with technology partners based on recommendations from the working group. After that, the CBDCs will be tested in a sandbox environment to evaluate their design and functionality. Thereafter, RBI will test their resilience by subjecting them to various stressful scenarios and then assess the results. If the test results are met, the RBI will launch a pilot with as wide a demographic as possible. Lessons learned from the pilot will be incorporated into the CBDC’s final design.
By developing the retail CBDC, the bank aims to make it more like physical notes where the holder is assumed to be the owner. In developing wholesale CBDC, the bank will likely use an account-based system where owners are identified by transaction records rather than holding digital tokens. The bank hopes to create a reliable system that is immune to fake tokens and double spending.
In particular, the bank does not see distributed ledger technology (DLT) used by blockchains as capable of providing the necessary transaction throughput for large jurisdictions. Instead, it sees DLT as playing a role in a hybridized CBDC architecture with both centralized and decentralized elements.
CBDC is more like money than private crypto
Although the Indian government has not chosen to ban crypto, instead imposing heavy taxes on gains, the flavor of the RBI report suggests an aversion to the asset class.
According to the RBI, “The inherent design of cryptocurrencies is more geared towards bypassing the established and regulated intermediation and control arrangements that play a crucial role in ensuring the integrity and stability of the monetary and financial ecosystem.” The bank believes that crypto undermines the country’s “financial and macroeconomic stability.”
A Twitter user, who is reportedly a qualified film director, said that the crypto industry is likely to suffer when the RBI introduces CBDCs:
Twitter users criticized the report, with some suggesting that CBDCs take the country one step closer to a surveillance state:
The report does not provide any planned date for the launch of the CBDCs. Nevertheless, it emphasizes 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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