The Reserve Bank of India (RBI) is implementing central bank digital currency (CBDC) in a phased manner for wholesale and retail segments, an official said on Wednesday.
The introduction of the CBDC was announced in the Union Budget 2022-23 by Finance Minister Nirmala Sitharaman and the necessary amendments to the relevant section of the RBI Act 1934 were made with the passage of the draft finance bill 2022, Ajay Kumar Choudhary, chief executive (Fintech), said the Reserve Bank of India (RBI).
The passage of the bill enabled the RBI to conduct a pilot project and the subsequent issuance of CBDCs, he said.
“The RBI is also working on the gradual implementation of a Central Bank Digital Currency (CBDC) in the wholesale and retail segments,” Choudhary said during a keynote address at the “PICUP Fintech Conference & Awards ” of the FICCI.
CBDC is a digital or virtual currency, but it is not comparable to the private virtual currencies or cryptocurrency that have proliferated over the past decade. Private virtual currencies do not represent any person’s debt or liability because there is no issuer.
India’s official digital currency is expected to debut in early 2023, mirroring one of the currently available e-wallets run by private companies. The CBDC will be a state-backed digital currency.
Addressing the role of fintechs in the rapidly evolving digital payments space, the official said that the RBI has encouraged innovation and is closely monitoring the benefits and risks associated with innovative products and services offered by fintechs. .
As the adoption of fintech has accelerated in the country, the Reserve Bank issued guidelines for emerging areas such as payment banks in 2014, account aggregator in 2016, prepaid instruments in 2017 , peer-to-peer lending in 2017, bill discounting 2018 to facilitate the digital industry and facilitate the onboarding of consumers, individuals as well as KYC documentation, the official said.
He said the fintech has already made its mark in the digital payment space with the invention of UPI (unified payment interface) in the country.
Citing data, he said so far this year, India’s UPI transaction has seen the participation of 323 banks and recorded 5.9 billion monthly transactions worth more than 130 billion of dollars.
The revolution brought by the QR code and the interoperability features ensured that the fingertip banking phase came to fruition, the official said.
“I have also observed that most of the younger generations now avoid carrying a physical wallet as everything they need is in their mobile phones. The contribution of fintech to digital payment can also be observed through the use of prepaid payment instruments.
“Fintech companies are also transforming the very definition of banking and finance with their role played in the digital segment, through their innovative credit models using AI, ML tools…they are able to grant credit to customers who don’t have a credit history to get credit,” Choudhary said.
The RBI official said investment in the Indian fintech space has increased significantly.