The Reserve Bank of India said in a statement that, India should start with the fundamental form of central bank digital currency (CBDC) and use the payment system architecture as a backbone to create a state-of-the-art CBDC.
In its basic form, a central bank digital currency provides a safe, robust, and convenient alternative to physical cash. Depending on various design choices, it can also assume the complex form of a financial instrument. "Considering its dynamic impact on macroeconomic policy making, it is necessary to adopt basic models initially, and test comprehensively so that they have minimal impact on monetary policy and the banking system. "India's progress in payment systems will provide a useful backbone to make a state-of-the-art CBDC available to its citizens and financial institutions," the RBI said in its report on 'Trend and Progress of Banking in India 2020-21'.
In respect of existing forms of money, the CBDC can offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement, it said, adding the central banks across the globe are deliberating on how to implement CBDCs.