CBDC - Central Bank Digital Currency

What is currency?
In modern economies, currency is any form of money which is sovereign and is
considered a legal tender.

CBDC is the digital form of our currency, i.e. Rupee, which is issued by the central
bank. It is having the same features as the Physical form of money, like:
1. Sovereign currency.
2. Liability on the Central Bank’s balance sheet.
3. Accepted as a medium of payment.
4. Fungible legal tender. (Users need not have a bank account to possess it.)

How is CBDC different from the INR:

1. Freely convertible for cash/money against commercial banks.
2. Lower cost of transaction and issuance as compared to the physical form of
money.

Why CBDC:
1. In modern economies, the payment systems are changing at a very high
pace.
2. The modern users are expecting faster transactions, available 24/7, anywhere
and anytime.
3. Even though cryptocurrencies are into existence, but they are decenteralizing
the Indian monetary and financing systems. They disrupt the traditional
financing system of India.
4. Will provide general businesses and public with a convenient and electronic
form of money with safety and liquidity.
 5. Will also provide entrepreneurs a new platform to create new products and
services.
6. Central Banks, faced with dwindling usage of paper currency, seek to find
and promote a more acceptable electronic form of currency, CBDC.
7. Central Bank can meet the expectation of country’s requirement of a digital
currency, where citizens are using private virtual currencies. Introducing
CBDC could decrease the damages caused by these private virtual
currencies.

Implementation:
1. Build a prototype as per the recommendations of the WG. Specify technical
requirements to technology partners.
2. Test the idea in an operationally controlled environment to examine its
functionality, including the design, deployment plan and success criteria.
3. Perform test cases with both positive and negative scenarios to examine its
durability and document the results.
4. Evaluate Test Results and finalise the design of the prototype
5. Pilot: Conducting large-scale pilots with a diverse and larger user base.
Participants of the pilots must include users from different income levels,
literacy levels, regions, genders and age groups. This will help RBI
understand the potential use of the CBDC in a diverse country like India.
The results and learnings of the pilot need to be carefully evaluated and must
be incorporated into the final design of the CBDC.

Nine banks, viz., State Bank of India, Bank of Baroda, Union Bank of India,
HDFC
Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC
have
been identified for participation in the pilot.