What an e-rupee really is must be crystal clear

Source– The post is based on the article “What an e-rupee really is must be crystal clear” published in the mint on 10th October 2022.

Syllabus: GS3-

Relevance– Digital currency

News- The article explains the recent RBI concept note on Central Bank Digital Currency (CBDC).

Which issues are clearly addressed in the RBI note?

The RBI note has clearly addressed the issue of monetary stability. Money supply due to e-rupee may lead to inflation.

It has clarity on danger of disintermediation. It rejects interest-paying CBDC as it might get enough funds to leave lenders out of the loop.

Which issues are not clearly adressed?

On Product-The two versions of CBDC will create misconfusion.

On placement- Banks and wallets will work as intermediaries. It will not create disruption. But we should have flexible technology to ensure its gradual shift to direct or hybrid models of finance. It will ensure that RBI can use deposit rates directly as tools and keep e-rupee saving free from bank failure.

On promotion– For promotion, UPI may be used as a base for retail CBDC. But we need cash like appeals for CBDC which has components like no need for ban and anonymity of transaction. First component can be addressed by use of the internet. For the second component, we need privacy laws and anonymity of transactions. At this juncture, RBI can only ensure anonymity for small value transactions.