How a central bank digital currency might work in the Indian context

CBDC, as the name suggests, is essentially a legal tender issued in a digital form, which is managed on a digital ledger (a blockchain).

In India, the Reserve Bank of India (RBI) is working on a phased implementation strategy for CBDC and the pilot is likely to be launched by the end of this year.

PwC India has come up with a paper on ‘Central Bank Digital Currency in the Indian Context’ by Mihir Gandhi, Partner and Leader – Payments Transformation, PwC India and Vivek Belagavi, Partner and Leader, Fintech, PwC India, in which they discuss various models We do. And use cases of CBDCs.

The financial advisory services firm has listed four major use cases of CBDCs in the Indian context.

programmable payment

One possible use case for a CBDC could be ‘fit-for-purpose’ money used for social benefits and other targeted payments in a country. For such cases, the central bank can make payments to the intended beneficiaries of a pre-programmed CBDC, which can be accepted only for a specific purpose. For example, a pre-programmed CBDC can be issued for LPG subsidy in the form of Direct Benefit Transfer (DBT).

cross border remittance

According to PwC India, CBDCs can be used for faster cross-border remittance payments. International cooperation among the world’s major economies, including India, can help create the necessary infrastructure and systems for CBDC transfers and conversions.

retail payment

Payment instruments can be made available for payment transactions done through a CBDC. In addition, the universal access feature of a CBDC may also include offline payment functionality.

According to PwC India, the underlying technology of a CBDC, along with the digital nature of the currency, make it superior to existing digital payments. Its irrefutable nature combined with ownership record transfer can provide irrefutable proof of ownership.

MSME Lending

With the help of CBDC, it may be possible to give instant credit to Micro, Small and Medium Enterprises (MSMEs) in India. As more MSMEs use CBDCs, banks can create more accurate borrower risk profiles. It can be used to meet MSME financing requirements instantly.

In addition, incentives for MSMEs can also be disbursed quickly from the central bank, Gandhi and Belagavi wrote in the paper.

How argued that the potential risks involved in CBDCs are cyber hacks and threats, threats to monetary sovereignty, intermediation of banks, risks to financial inclusion and threats to privacy.