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Mainstream, VOL 61 No 3, January 7, 2023

Significance of the Launch of Digital Currency by India’s Central Bank | Anil Kumar Kanungo and Ujjvala Kanungo

Saturday 7 January 2023


by Anil Kumar Kanungo and Ujjvala Kanungo *

Reserve Bank of India’s (RBI) decisive move to initially discount the growing promises and popularity of crypto currency in India is quite praiseworthy. In a highly uncertain, volatile and non-transparent global financial regime, adoption of cryptos as a currency runs the risk of putting Indian economy into jeopardy. What instead worth considering was a controlled, transparent and reliable digital currency such as CBDC (Central Bank Digital Currency) to take care of the financial activities of Indian economy vis-à-vis global. This is what exactly RBI ushered in when it launched its pilot project on CBDC on November 1, 2022.

This initiative was rigorously discussed in the last few months among major stakeholders, mainly the concerned ministry, Ministry of Finance and RBI. Union Minister for Finance and Corporate Affairs, Ms. Nirmala Sitharaman, while presenting the Union Budget for 2022-23, in the parliament had elaborated and emphasized that introduction of Central Bank Digital Currency (CBDC) would give a big boost to a digital economy. She asserted that digital currency will also lead to a more efficient and cheaper currency management system. [1]

Such relevance and necessity of CBDC was reiterated when Union Minister of State for Finance Shri Pankaj Chaudhary heralded such a beginning to be a game changer in December 2022. RBI had unveiled such a concept note on October 07th 2022 to clinically examine relevance of it. [2] Earlier, the high level inter-ministerial committee constituted by Ministry of Finance on 02nd November 2017 to examine the policy and legal framework for regulation of virtual currency [3] had recommended introduction of CBDC to emerge as a digital fiat currency in India. To be precise, it took couple of years for the central bank to calibrate their moves in a systematic controlled manner to launch CBDC as it was fully aware of the risks and dangers attached to such digital currency. Currently, CBDC is recognized as e-rupee in India. Few nationalized and private banks such as SBI, HDFC, Union Bank of India, HDBC, YES Bank etc. have been assigned the role of lenders to carry out such activities. Initial stage of such transactions will be in the forms of B to C (Business to Consumers) and C to C (Consumers to Consumers).

Many other economies like Sweden, Russia, Nigeria, and China have also launched such e-currencies. Major economies are in the process of solidifying the formal transactions through such e currencies. USA is in the midst of discussions regarding launching of e-currency.

China of course has already taken a head start in this respect. Its e-currency, Digital Currency Electronic Payment (DCEP), has been gaining momentum over time and is already being used to pay for transportation, education, and other goods and financial services across China. But it is not alone. Many other economies such as South Korea, Bahamas, Sweden, etc. have already taken initiative in the global CBDC gold rush. The United States, however, has held back its decision. If US as a significant economy doesn’t take immediate initiative to adopt a more proactive strategy, it risks its leading role in global finance and fin-tech activities, thus eroding the uniqueness and strategic influence of the US dollar. [4] It is crucial that the US take lead in developing an international regulatory framework around digital currencies, including CBDCs, so that consumer protection, privacy, data management, financial anti-crime compliance, financial stability, and the protection of monetary sovereignty are ensured.

However, India’s e-currency-Central Bank Digital Currency (CBDC) or Digital Rupee is a digital form of currency notes issued by the central bank, RBI. It is a legal tender and treated in the same way as a fiat currency. It can be used as a medium of exchange on one to one with the fiat currency, but exists in a different form. Being a digital currency or e-rupee, it provides contactless transactions and prevents carrying the burden of holding fiat currency in your wallet.

At a time when the global economy is moving towards becoming virtual, the role of CBDC will be key to medium of international transactions. RBI’s launching of e-currency is timely, innovative and predictable. Advantages it offers are significant.

India’s launching of CBDC is a well thought out conscious decision by the RBI in consultation with Ministry of Finance and Union government. All feel that future transactions will rest on the use of CBDC as most economies are endeavouring seriously to launch their own e-currencies for global integration.


Firstly, it is a sovereign currency in an electronic form and it would appear as liability (currency in circulation) on a central bank’s balance sheet. This provides adequate cushion to the central bank to monitor its usage in a transparent manner.

Secondly, the underlying technology, form and use of a CBDC can be moulded for specific requirements. CBDCs should be exchangeable at par with cash such as one for one. In addition, CBDCs have some clear advantages over other digital payments systems – payments using CBDCs are final and thus reduce settlement risk in the financial system. Imagine a UPI system where CBDC is transacted instead of bank balances, as if cash is handed over – the need for interbank settlement disappears.

Thirdly, CBDCs would ensure potentially a more real-time and cost-effective globalization of payment systems. That’s because transaction gets instantaneously over. It is therefore possible for an Indian exporter to receive from its American importer on a real time basis in digital dollars, without the help of an intermediary. Time zone difference would no longer matter in these currency settlements.

Fourthly, India’s cash to GDP ratio is still very high. Some usage of these high cash transactions may not be necessarily getting reported before the government. This is otherwise becoming part of the black money market. To control or stop these corrupt practices, CBDC might just come handy as this entails digital transactions. In addition, such a move can reduce the excessive use of cash thus cutting down the costs of printing, transporting, storing and distributing across the country.

Fifthly, with the advent of virtual currency (VC), such as Bitcoin, Ethereum, etc. reliability and transparency of such digital assets have come under scrutiny. Against such high volatility and opaqueness thrown by VCs, CBDC has gained significant momentum and growing acceptance. CBDCs are therefore fast emerging as a secure and stable form of digital money. To reiterate gravity and veracity of such issue, Christine Lagarde, President, ECB (European Central Bank) highlighted in BIS Report “ … central banks have a duty to safeguard people’s trust in our money. Central banks must complement their domestic efforts with close cooperation to guide the exploration of central bank digital currencies to identify reliable principles and encourage innovation.” [5]

This pilot project initiative will last for some time till the time CBDC builds up its internal trust among the users such as government institutions, trade & industry, financial institutions and consumers. Government wants it to be real medium of transactions which should be conducted in a secure, transparent and non-cyber-crime environment. Besides, important global trading and economic partners need to be fully ready with their e-currency to conduct global transaction. After all global commerce needs secure e-currency transactions.

In India initial signs of CBDC usage will be slowly found only among governmental set-ups, ministries, governmental institutions. Ministries such as finance, commerce, railways, telecommunications, and healthcare are expected to be the frontrunners in using such e-currency. The union government is quite apprehensive about its misuse and cyber-crime threats therefore will ensure that such usage should not occur. It promises to take extra care towards safety and security. It will also protect people from volatility of crypto currency.

Indian railways is rapidly witnessing smart tech driven innovation. To add to it is Gati Shakti, National Master Plan for Multi-modal connectivity. It is essentially a digital platform bringing 16 Ministries including Railways and Roadways together for integrated planning and coordinated implementation of infrastructure connectivity projects. The multi-modal connectivity will provide integrated and seamless connectivity for movement of people, goods and services. Usage of CBDC in the near future in such an initiative can be expected.

100 per cent tech literacy and digitalization is still a huge challenge for India. Such inclusiveness to a great extent can be achieved when India’s distribution of income is horizontally spread out and everyone has an access to smart phone, internet, and digitalization. As our country still lives though as huge digital divide, CBDC to immediately become a medium of transaction replacing fiat currency is a far cry.

Absorption of CBDC in the economy also depends on the preparedness of well-equipped technology. Consumers will be able to scale such digital currency system only when they have continuous access to high speed internet and telecommunications network.

Under such innovation and novelty what is desirable for a developing economy like India is to create a secure, legal, transparent and predictable digital regime by which CBDC is slowly and progressively allowed to make transactions possible domestically and globally. Central Bank is currently working towards a phased implementation strategy and examining its use so it could be implemented with little or no disruption to India’s banking or monetary systems. In India where access to internet and digital literacy are still a challenge, coexistence of cash and CBDC will be a realistic option.

* (Authors: Anil Kumar Kanungo is former senior faculty, Indian Institute of Foreign Trade (IIFT), Delhi and Ujjvala Kanungo is B. Com (Hons) student, University of Delhi)

[1Union Budget 2022-23 at accessed on January 01 2023

[3 accessed on January 02 2023

[4 accessed on January 02, 2023

[5Press release: Central banks and BIS publish first central bank digital currency (CBDC) report laying out key requirements accessed on December 15, 2022

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