Central Bank Digital Currency (CBDC) – RBI Digital Currency

Indian central bank RBI is launching its own digital currency CBDC (Central Bank Digital Currency). Central Bank Digital Currency is seen as the substitute for cryptocurrencies and cash. CBDC is supposed to be an asset as well as a medium of exchange. The wide adoption of CBDC completely depends on its usefulness as a cash substitute.

Replacement of Crypto Currency

Cryptocurrencies like bitcoin are not legal tender in India that’s why they are used as assets only in India, therefore CBDC can be a replacement for cryptocurrency. El Salvador is the first country that allows bitcoin as a legal tender but in India, there is no ban or regulation on the use of crypto currency.

CBDC’s values are expected to be stable and this feature will result in limiting its attractiveness as an asset. Therefore CBDC is going to be used as a medium of exchange than an asset.

RBI issued CBDC will appear on the balance sheet of RBI as liability, it is the same as physical cash the only difference between them is that their form is different and no need to be printed on paper, safe to carry than cash which can be stolen or lost and all CBDC need is mobile connectivity and robust technology. As we know CBDC is a legal tender, therefore, it is a good substitute for digital wallets because legal tender is recognized by law and it is accepted when offered as a means for the settlement of the transaction.

Currently in India, RBI issues banknotes which is a legal tender. An amendment is proposed by the Finance Bill, 2022 for facilitating the issuance of CBDC as a legal tender. In this amendment, a definition is introduced that banknotes include both digitals as well as physical forms.

Pre–paid instruments such as Paytm are authorized by RBI for the purchasing of goods and services but are still used only when the entity accepts the pre-paid instrument. RBI’s CBDC can affect payments banks because it can replace the wallets. In addition to bank deposits, cash, CBDC can also be used as a medium of exchange through bank transfers or through cheques. Therefore CBDC would be a liability on RBI and thus it will carry no risk.

Concern regarding CBDC (Central Bank Digital Currency)


The major issue regarding CBDC is the privacy of the users. Digital currency will not provide the level of privacy and secrecy offered by transacting in cash. Instead of this data stored in the central bank will hold security risk and it will require a robust data security system that can prevent data breaches.

Therefore the choice of technology used for CBDC should be secure and privacy-preserving. India still has to pass a data protection bill, Data protection authority is set up for the grievance redressal if there is any case of violations of personal data and overseeing the privacy compliance range by the institution. Financial data which is collected on the transaction of digital currency are sensitive in nature, therefore regulatory design should be made properly.


  1. Major advantage of CBDC is that it will reduce the dependency on cash.
  2. CBDC are regulated by RBI and is a legal tender hence trusted.
  3. CBDC will save the operational costs of storing, distributing and printing of currency notes for RBI. According to the market the operational cost for every Rs. 100 note is Rs. 15 – 17 in 4year life cycle.
  4. It will increase financial inclusion.

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