The Reserve Bank of India (RBI) is looking at a phased implementation strategy to unveil the central bank digital currency (CBDC).
It has made this observation in a concept note on CBDC prepared by RBI's fintech department.
Finance Minister Nirmala Sitharaman had announced the launch of CBDC in her budget speech, informing that it would be unveiled in the current fiscal itself.
"RBI has been exploring the pros and cons of introduction of the CBDCs for some time. As there are multiple compelling motivations for the introduction of CBDCs, RBI is currently engaged in working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch, and simultaneously examining use cases that could be implemented with minimal or no disruption," the note said.
CBDC, across the world, is in conceptual development or at pilot stages.
Therefore, in the absence of a precedence, extensive stakeholder consultation along with iterative technology design must take place to develop a solution that meets the requirements, it said further.
RBI however noted that CBDC holds a lot of promise by way of ensuring transparency and low cost of operation, among other benefits and has the potential to expand the existing payment systems to address the needs of a wider category of users.
The central bank further said that while the intent of CBDC and the expected benefits are well understood, it is important to identify innovative methods and compelling use cases that will make CBDC as attractive as cash if not more.
Elaborate planning is needed in terms of scope, cost and timelines to ensure the timely roll out of different phases of CBDC introduction, the RBI note said further.
"Depending on the different use cases, multiple technological options shall be tested and based on the outcomes, the final architecture shall be decided. As per recommendations of the internal Working Group (WG) set up by Reserve Bank in October 2020, RBI is exploring the option of implementation of account-based CBDC in wholesale segment and token-based CBDC in retail segment vide a graded approach," it informed.
Elaborating on details of the phased implementation of CBDC, the note said that first a prototype as per the recommendations of the WG would be prepared and technical requirements would be specified to technology partners.
The idea then would be tested in an operationally controlled environment to examine its functionality, including the design, deployment plan and success criteria.
After this, test cases would be performed with both positive and negative scenarios to examine its durability and document the results.
These test results would then be finalised to design the prototype.
Once this is done, large scale pilot tests would be conducted with a diverse and larger user base.
"This will help RBI understand the potential use of the CBDC in a diverse country like India. The results and learnings of the pilot need to be carefully evaluated and must be incorporated into the final design of the CBDC," the note said.