India's central bank to launch e-currency

The Reserve Bank of India (RBI) may launch a pilot of its central bank digital currency (CBDC) by December this year, according to governor Shaktikanta Das, who added that the bank is "extremely careful" about the new product.

The RBI noted that the country's high currency to GDP ratio calls for a switch to CBDCs.

CBDCs can reduce the cost of printing, transporting, storing, and distributing currency, in the transaction demand for bank deposits, and reliance on cash.

The RBI said that digital currencies developed by India could help retain a public preference for the Rupee, unlike private virtual currencies that encourage the use of the US dollar.

The RBI has advocated the use of a digital currency, as fiat money, to reduce dependency on paper notes and reduce the load on transactions.

CBDCs would also enable more real-time and cost-effective globalization of payment systems, according to RBI.

RBI deputy governor T Rabi Sankar had said that the time for CBDCs has come.

But Sankar warned that if private currencies like Bitcoin gain recognition, national currencies with limited convertibility are likely to come under threat.

He noted that while virtual currencies are digitally encrypted, decentralized, and not government-linked or regulated, while a CBDC will be a digital version of the fiat currency and issued by a country's central bank. The latter requires intermediaries to make transfers.

Moreover, the fiat currency supply is regulated by central banks and can be increased or decreased, whereas cryptocurrency supply is limited.

Also, legal tender currencies can be kept in bank accounts, while cryptocurrencies are be stored in digital wallets.