With cryptocurrency becoming very popular among people globally because of its decentralization feature, many countries are trying to catch this space by launching their own CBDC tokens or coins.
Even though Central Bank Digital Currency (CBDC) has been pegged as an alternative to cryptocurrency by governments globally, it can never replace it, as it will be controlled by a central authority.
Cryptocurrencies are based on blockchain technology that is very secure, free from any control, open-source, but very volatile. Built on blockchain technology, they are transparent and immune to government interference or any kind of manipulation.
Cryptocurrencies are digital assets that are secured by cryptography, which makes it next to impossible to counterfeit. They have their own store values and are designed to use as a medium of exchange for buying goods or services.
Showing the volatility fear among people, governments, international financial organizations and banks globally have started working on a Central Bank Digital Currency (CBDC), which they say will be very stable.
CBDCs at the Global Fintech Festival
In order to bring global institutions & banks to one platform to discuss the importance of CBDC, a Global Fintech Festival was organized in India recently.
The event was organized by the Indian government-owned National Payments Council of India (NPCI), a specialized division of Reserve Bank of India for operating retail payments and settlement systems in the country, along with Fintech Convergence Council (FCC) and Internet and Mobile Association of India (IAMAI)'s Payments Council of India (PCI).
Speaking at the event, International Monetary Fund's Financial Counselor and Director Monetary and Capital Markets Department Tobias Adrian said:
" About 80-100 Central Banks around the world, including G20 nations, are exploring the Central Bank Digital Currency (CBDC) and are in some sort of pilot or testing stages."
Adding further, Adrian said:
"CBDCs are designed to be very stable, stable in value, low transaction cost and backed by the Central Bank for added consumer confidence, very different from Bitcoins which fluctuate in value and are more like an investment asset."
Central Banks around the world are seriously looking to adopt CBDCs as they are very appealing for Central Banks to go along with technological progress. Also, there could be a lot of innovations in Central Banks issued digital currencies, especially across payments, lending platforms.
"CBDCs could indeed be somewhat similar, not necessarily be, to Bitcoin assets, could be based on blockchain technology, could be available in wallets. It depends on the design whether it is based on existing payment systems or using very powerful blockchain technologies" Tobias Adrian stressed.
Adrian also warned that cybersecurity could be a major challenge for CBDCs. "You need to make sure that the system is resilient against cyberattacks."
It's not the technology alone but the intersection of technology and humans. Secondly, CBDCs might undermine existing banks so banks need to upgrade their technologies to compete. Finally not everybody today has cell phones for transacting CBDCs.
CBDC in India
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 once cleared will give legal powers to the Reserve Bank of India (RBI) for developing the CBDC Rupee Coin.
Apart from that, the bill, which is yet to be introduced in the parliament, is expected to clear the government's view on cryptocurrency.
Even though RBI is of the view that there needs to be a complete ban on crypto, the finance ministry has said on various platforms that crypto projects will be categorized on the basis of the use cases.
RBI has already been working on the CBDC and it is expected to start a pilot project implementing its own digital Rupee by December 2021 end.
On 25 January 2021, RBI stated that it is examining if there’s a need to introduce CBDC in India. In case the need for a digital currency arises, the bank will look for ways to operationalize it.
In February’s 2020 Bulletin, RBI cited the survey of central banks conducted by the Bank for International Settlements which revealed that around 80% of the 66 responding banks have started projects to explore the use of CBDC, including Canada, USA and Singapore.
In the coming months, many nations will be launching their CBDC. India which is working on its own Rupee coin will also be ready. However, whether countries will promote it as a cryptocurrency alternative is very early to say.
But one must have a Klever approach!
Jagdish Kumar
Klever Writer