Posted On - 20 October, 2022 • By - King Stubb & Kasiva

RBI’s Fintech Department, for the first time in October 2022, has published a comprehensive
concept note introducing a Central Bank Digital Currency (CBDC). CBDC is a digital form
of currency notes which are issued by the Central Bank. The purpose of the concept note is to
increase public awareness of CBDC and the features of the digital rupee. It elaborates upon
the objectives, choices, benefits, and risks of issuing a CBDC, or a digital Rupee in India.

The CBDC’s adoption’s consequences on the banking system, monetary policy, financial
stability, and privacy issues are discussed in the concept note, along with design and
technology choices, prospective uses for the Digital Rupee, issuance techniques, and effects
on the issuance of the currency. As the scope and complexity of such pilot launches expand,
RBI will sporadically continue to talk up the unique qualities and benefits of CBDC in its

RBI will issue CBDC as legal tender and it would have the same value as fiat currency,
thereby making it exchangeable. It will appear as a liability on the balance sheet of the central
lender and be consistent with RBI’s monetary policy. CBDC is a fungible legal tender that
does not need account ownership. It intends to speed up and reduce the cost of transactions.

RBI is also concerned about the growth in the popularity of cryptocurrencies in recent years.
According to the central bank, there are significant risks for money laundering and terrorism
funding due to the expansion of digital assets. The RBI believes that the development of
CBDC might provide the general people with a risk-free virtual currency that would provide
them with legal advantages without the risks connected with dealing in private virtual


Recognizing the developments in the field of CBDC at a global level, RBI set up an Internal
Working Group in October 2020, which worked on the setup for introducing CBDC in India.
The major recommendations were as follows:

  • A robust legal framework to back the Digital Rupee as a form of currency by amending the RBI Act.
  • Deciding the design of the Digital Rupee, which is compatible with the objectives of financial stability, depending on the country’s situation and needs.
  • Undertaking pilot projects with implementation in different phases, especially about the token-based variant in the retail segment.
  • To start with, Digital Rupee with a specific purpose, one in each wholesale and retail segment, should be implemented.
  • More research should be conducted on the technological aspects of CBDC implementation because of issues such as traceability, privacy, transaction costs, etc.


To understand what CBDC is, RBI explained the features of CBDC, which are as follows:

  • A sovereign currency issued by Central Banks in line with their monetary policy.
  • Appearing as a liability on the bank’s balance sheet.
  • Accepted as a medium of payment, legal tender, and a safe store of value by all citizens and entities.
  • Easily convertible against money and cash.
  • A Fungible legal tender that does not require a bank account for holders.
  • The aim is to lower the cost of the issuance of money and transactions.

The motivation behind issuing CBDCs

Taking into consideration several justifications by different nations along with India’s
affordable, accessible, and safe payment systems, the RBI furthered their belief that Digital
Rupee would enhance India’s digital economy and financial inclusion along with making
payment systems even more efficient. Further reasons elaborated upon by the RBI are as

  • Reduction in cost of management of physical cash
  • To further the cause of digitization by achieving a less cash economy
  • To support competition, efficiency, and innovation in payments
  • To explore the use of CBDC for improving cross-border transactions
  • To support financial inclusion
  • To safeguard the trust of common citizens in the national currency along with the proliferation of crypto assets


Primarily, RBI reiterated three foundational principles which should be considered while
issuing CBDC, as outlined by the BIS:

  • It should not interfere with public policy objectives or hamper the banks from performing their monetary stability mandate.
  • It should complement existing currency and be used alongside.
  • It should further innovation and competition to enhance the efficiency and accessibility of the payment system.

According to these principles, RBI determined that the design choices are primarily driven by
domestic circumstances. It requires a resilient and secure infrastructure that can be used by a
large number of users. The key considerations to be kept in mind while determining the
design are:

  • Types of CBDC, i.e., general purpose (retail) and/or wholesale.
  • The role of the Central Bank and other entities from the private sector in facilitating
    access to CBDC. Two broad models have been considered for this:
    • Single Tier Model or the Direct CBDC Model- Central Bank is responsible for
      all aspects.
    • Two Tier Model or the Intermediate Model- Central Bank along with other
      service providers will play their role.
  • Instrument Design, i.e., whether CBDCs should bear interest.
  • Whether the CBDC would be account-based or token-based.
  • The degree of privacy that would apply to the CBDC and individuals or entities who
    would be allowed to hold it.


Since CBDC is digital, it gives rise to technological considerations. The primary objectives
have been categorized as:

  • Strong cybersecurity, technical stability, and resilience.
  • Sound technical governance.

The choice of technology platform, either a distributed ledger or a centralized system, is the
fundamental determination that needs to be made. The security aspects, environmental and
energy intensiveness concerns, and policy imperatives are other factors that need to be


There are several other aspects considered and explained in the concept note, such as:

  • Resource Intensiveness
  • Business Continuity Planning
  • Consumer Protection and handling grievances

CBDC will have various implications on the Monetary Policy, Liquidity Management,
Financial Stability, legal implications, and implications on the Balance Sheet. CBDC could
enable timely transmission of monetary policy, however, the potential impact continues to
remain unclear and is only speculative yet. Pertaining to liquidity management, there will be
a large impact on the reserve money, money supply, net demand and time liabilities, etc.
because of the potential substitution of the currencies in the deposits of commercial banks.

Financial stability concerns have been cited as one of the most obvious implications, for
which Central Banks around the world are exploring safeguards such as access criteria for
permitted users, limits on individual CBDC holdings, etc. In addition, CBDC requires a legal
framework outlining the Central Bank’s mandate to issue Digital Rupee and its legal status,
which is absent in the existing legal frameworks.


This Concept Note has been released at a time when India’s once-expanding cryptocurrency
industry was facing significant difficulties, including harsh new taxes and a shadow exchange
ban that significantly reduced trading volumes. The worldwide bear market in
cryptocurrencies, macro reasons like inflation and the war in Ukraine, an inquiry into 10
exchanges, layoffs, and the collapse of the policy organization representing cryptocurrencies
were all added to this.

RBI has been attempting to explore the pros and cons of introducing CBDCs for a long time
now, and it will continue to monitor the developments around the world. This will ensure that
India stays up to date with the latest research and findings about CBDC. In addition, RBI has
also been deliberating on the different technological choices available. Through this Concept
Note, a high-level view of motivations for introducing CBDC in India, potential designs,
implications on policy concerns, technological and security concerns, etc. have been
highlighted. In furtherance of this, there is a significant need for elaborate planning of scope,
cost, and timelines for properly introducing CBDC in India.