India is Exploring a Central Bank Digital Currency for Payments

The Reserve Bank of India (RBI) joins a growing list of global counterparts in exploring a central bank digital currency (CBDC) that would constitute the digital equivalent of the Indian rupee.

The RBI has established an inter-departmental group to explore the demand and plausibility of a blockchain-based digital currency to be used in domestic payments, the central bank said in its Annual Report 2017-18 [PDF] released on Wednesday.

The monetary regulator cited “rapid changes” in the global payments industry bought on by disruptive factors like the “emergence of private digital tokens and the rising costs of managing fiat paper/metallic money” as factors for the RBI exploring its own digital asset.

The central bank said:

“[A]n inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency (CBDC).”

As reported by CCN earlier this week, the RBI discreetly established the new internal unit with a mandate to research cryptocurrency and blockchain technology under its roof. It is also believed that the unit has been operational for over a month and will also take an interest in drafting regulations for the usage and trading of public, decentralized cryptocurrencies like bitcoin.

The developments come at a time when Venezuela launched the world’s first state digital currency ‘petro’, a controversial token which Venezuelan president Nicholas Maduro claims is backed by the country’s vast oil reserves.

Contrary to CBDCs developed by the likes of Singapore, Thailand, China, South Africa and now India, the petro was developed with the objective to overcome U.S.- led financial sanctions. Iran is also eyeing its own indigenous state cryptocurrency to overcome an international financial blockade.

As early as January 2017, the RBI’s Institute for Development & Research in Banking Technology (IDRBT), the central bank’s research arm and India’s primary banking research institute, published a whitepaper that detailed research exploring blockchain technology as the core infrastructure to support a state cryptocurrency. Central bank researchers determined that the decentralized technology had “matured enough” to be the core driver in digitizing the Indian rupee.

In late 2017, the RBI’s executive director confirmed research toward a ‘fiat cryptocurrency’ with the digital token to be dubbed as ‘Lakshmi Coin’, named after the Hindu goddess of wealth and prosperity.