Does India really need a central bank digital currency?
This may be the case with central bank digital currency (CBDC). Announced in Nirmala Sitharaman's 2022 budget speech to bolster the unfounded belief that private virtual currencies (PVCs) like bitcoin, upon which an unpopular tax was levied, posed a threat that only a CBDC could counter, RBI was forced to railroad this project into the list of commercial bank priorities, and public consciousness.
Had it been possible to rectify the misconception of its eminence grise, e₹ might never have been. After all, the capital gains tax on the sale of PVCs showed that GoI treated them as speculative assets rather than as competitive currencies. In any case, bitcoin did not threaten rupee transactions.
But sovereign proclamations trump fact, common sense and regulator autonomy. Thus, wholesale and retail versions of e₹ (e₹-W and e₹-R) were duly launched at end-2022. Since then, the hunt for opportunity has yielded less than stellar results.
According to RBI deputy governor T Rabi Sankar in 2021, CBDC-W could facilitate a real-time and cost-effective international settlement system in which settlement risk would disappear, along with the need for interbank settlement. Then, after launch, e₹-W focused on delivering domestic cost-effective secondary market transactions in G-Secs. But these were both over-engineered arguments, which took no cognisance, in the first instance, of settlement fees that are part and parcel of bank earnings and, in the second, of existing digital reserves, which made e₹-W superfluous.
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