Central Bank Digital Currency (CBDC) has once again proven to be the future of money as it gains India’s attention. Now, the country seeks to adopt it on a small and large scale. That is incorporating the wholesale and retail versions of Central Bank Digital Currency.
India To Set Up CBDC
On Friday, India’s central bank released a concept note containing directives about launching CBDC. The Fintech department of the bank is responsible for writing the fifty-page memo. According to the book, the currency will come in two forms.
First is the wholesale model that will allow transactions between or among banks. Second is the retail version for businesses and individuals to make payments.
Meanwhile, the idea displeased Indian crypto traders, who considered it unhealthy for the crypto ecosystem. A movie director tweeted that pioneering a CBDC would be bad for the crypto sphere. Furthermore, it will increase central oversight of digital activities.
In turn, that would defeat the purpose of financial privacy the space provides. Additionally, several opponents of the initiative stated it would eradicate digital decentralization.
Nevertheless, RBI seeks to design its CBDC identical to fiat currencies. The wholesale CBDC would likely integrate an account-based framework. With this, custodians are recognizable by their transaction record instead of their wallet balance.
Consequently, it will create a reliable method of transaction that repels double-spending. Also, wholesale CBDC would be limited to financial institutions. Banks and a host of others will have access to it.
Meanwhile, the retail CBDC would possess a token-based structure. Given it is the central bank’s liability, it can create an avenue for secure payments. Ultimately, both versions of CBDC are beneficial, having tested their potential.
Models Of CBDC Explored By RBI
The RBI is analyzing two models to manage and issue digital currencies. They include the direct or single-tier and indirect or two-tier models.
Under the single-tier model, the bank will oversee every segment of CBDC. That includes Bookkeeping, verification of transactions, and issuing of currency.
Meanwhile, banks and other financial operators will cover the two-tier model. Here the central bank will give out the currency via mediators.
Nirmala Sitharaman, India’s Finance Minister, first mentioned introducing E-Rupees some months back. He said the digital version of India’s fiat currency would get built on a blockchain layer. The division assigned to the project will set it off either in 2022 or 2023.
However, RBI thinks a bloc’s DLT might lack prospects for effective widespread transactions. Supposedly, RBI deems DLT a construct of CBDC meant to merge decentralized and centralized outlooks.
Furthermore, the concept note did not specify when CBDC would take flight. But the Bank of India declared CBDC a secure form of digital currency in it. It further said crypto assets incur risks in their dealings, but CBDC does not.
It provides a stable financial system that cryptocurrencies do not make available. Interestingly, users will enjoy a similar experience as transacting crypto assets.