How can you keep digital currency or central bank digital currency (CBDC) transactions private as cash? The Reserve Bank of India (RBI) is considering four options, though discussions are still ongoing to find the most suitable way to keep the anonymity akin to cash.
“We are looking at providing anonymity at the transaction level, but the custodian or banks should have wallet-level information, especially CBDC balances, etc.,” said Suvendu Pati, chief general manger (Fintech Department) at the RBI.
“One of the options is to kill the transaction after giving the banks sufficient time to address the disputes over the failed transaction,” he suggested while speaking at Global Fintech Fest 2023.
In fact, there is another way of creating a minimum threshold below which the transaction would be exempt from the Prevention of Money Laundering Act (PLMA) guidelines, he added.
In fact, there is also an option to make a legal provision to not lift the veil on CBDC transactions at all.
Since CBDC is money or currency like cash, it should have features like cash, especially for small-value transactions. But in a digital world, any transaction will leave a digital trail, which will make people sceptical to use CBDCs.
That is the big challenge before the RBI in making CBDC as popular as cash. Today, there is a lot of cash in the system —almost 13-14 per cent of GDP—because people love their privacy, especially when and where they use cash. Despite the popularity of UPI transactions or the digital e-commerce, the cash in the system is at abnormally high level.
The initiatives like demonetisation or the fear or demonetisation has also not helped.
Currently, the RBI is exploring all the technological solutions to offer anonymity in CBDC transactions.
India is amongst the very few countries that has launched CBDC or e-rupee pilots in wholesale and retail segments. Currently, banks are running pilots on both retail as well as wholesale segments to understands the transactions and also the behaviours of users.
This week, RBI Governor Shaktikanta Das said the adoption of CBDC or digital currency can help in making cross-border payments more efficient.
Today, cross-border payments have very high charges. This is one segment that is ripe for disruption. First, the UPI payments is expected to create a disruption in the cross-border payments as India is offering its digital stack to the outside world, which will make the payments seamless, faster and also cheaper.