The Reserve Bank of India (RBI) on Friday indicated that it will soon launch on pilot basis for limited use the much-awaited e-rupee, or central bank digital currency (CBDC), for specific use cases.
E-rupee is similar to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and will be accepted as a medium of payment, legal tender and a safe store of value, the central bank said.
“Currently, we are at the forefront of a watershed movement in the evolution of currency that will decisively change the very nature of money and its functions,” the central bank said.
According to the RBI, e-rupee can be structured as ‘token based’ or ‘account-based’.
“A token-based CBDC is a bearer instrument like banknotes, meaning whosoever holds the tokens at a given point in time would be presumed to own them,” it said.
In contrast, an account-based system would require maintenance of record of balances and transactions of all holders of the CBDC and indicate the ownership of the monetary balances, it said.
In a token-based CBDC, the person receiving a token will verify that his ownership of the token is genuine, whereas in an account-based CBDC, an intermediary verifies the identity of an account holder, it said.
Considering the features offered by both the forms of CBDCs, a token-based CBDC is viewed as a preferred mode for CBDC-R as it would be closer to physical cash, while account-based CBDC may be considered for CBDC-W, the RBI said.
“Private cryptocurrencies which have currency-like character will undermine RBI’s ability to deal with issues of financial stability. It is my duty to say that cryptocurrency investors should be aware that they are investing at their own risk. They should also keep in mind that cryptocurrencies have no underlying, not even a tulip,” RBI Governor Shaktikanta Das had said earlier.
