innovationinbanking

  The classic question is – Should interest be provided for deposits held in e₹ (Digital Rupee) accounts.           Reserve Bank of India concept note released to the public highlights the pros and cons of Remunerated CBDC and Non-Remunerated CBDC.           As the launch date comes closer, there will be more visibility on the interest part on Indian e₹ (Digital Rupee) A couple of extracts are as under: Remunerated CBDC The payment of (positive) interest would likely to enhance the attractiveness of an instrument that also serves as a store of value. Some proponents support interest bearing CBDCs as it could improve the effectiveness of monetary policy by shifting the transmission leg from overnight money market rate to directly deposit rate (or CBDC as a substitute of deposits), strengthening the pass-through of the central bank’s policy rate to the broader structure of interest rates in the ...

          Reserve Bank of India, in the Concept paper on Issuance of Concept Note on Central Bank Digital Currency, released to the public on Oct 07, 2022           The concept paper can be read @ https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CONCEPTNOTEACB531172E0B4DFC9A6E506C2C24FFB6.PDF (ii) Models for issuance and management of CBDCs (Direct, Indirect or Hybrid model), Highlight A) Direct – Direct claim on the Central Bank Highlight B) Indirect - Indirect claim on the Central Bank via intermediaries Highlight C) Hybrid – Hybrid claim on the Central Bank, but with a backup infrastructure   There are three models for the issuance and management of CBDCs across the globe.   The key differences lie in the structure of legal claims and the record kept by the central bank   A) Single Tier model - This model is also known as the “Direct CBDC Model”. ...

India’s e₹ (Digital Rupee) - Wholesale CBDC and/or Retail CBDC           The concept paper mentions the types of CBDC or e₹ (Digital Rupee)  that are planned for India.           As the issuance date comes closer, there may be more clarity on the exact types of CBDCs which can be seen in our country.           As of now, the following CBDC types are in pipeline: - Wholesale CBDC and/or Retail CBDC:   Highlight A) As the word denotes, Wholesale e₹ (Digital Rupee) is for low volume, high value transactions. Highlight B) As the word denotes, Retail e₹ (Digital Rupee) is for high  volume, low value transactions Retail currency is used to pay for things, to send money to friends and family, and to receive government incentives and subsidies  Wholesale currency is used by financial institutions to buy and sell financia...

  The Design Choices for India's own CBDC - e₹ (Digital Rupee)           As per RBI concept paper on CBDCs, as CBDCs are an electronic form of sovereign currency, they should imbibe all the possible features of physical currency. The e₹ (Digital Rupee) is the final product and the creative process toward the final product has to be designed. Though the design is a creative process it has economic consequences insofar as a product's shape, configuration and performance affect its marketability and its cost of production. The design of CBDC is dependent on the functions it is expected to perform, and the design determines its implications for payment systems, monetary policy as well as the structure and stability of the financial system. One of the main considerations is that the design features of CBDCs should be least disruptive. The least disruptive consideration will enable the general public to quickly adopt ERs as and wh...

  RBI e₹ (Digital Rupee) – The need for Offline Feature for India’s own CBDC similar to UPILite           As per the concept paper in public domain, e₹ (Digital Rupee) can be transacted in offline mode too.           Online mode means wherein the whole process requires net connectivity.           Offline mode means wherein the whole process may not require net connectivity.           A complete online process may not be beneficial to the public at large.           The exact approach to the Offline e₹ (Digital Rupee) will be known in due course. Quote At the same time, the use of offline feature in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not availabl...

  RBI e₹ (Digital Rupee)– Key Motivations for India’s own CBDC                     In the concept paper for India’s own CBDC, the Reserve Bank of India has highlighted the Key Motivations for the same.           Key Motivations are goalposts guiding toward the final goal. The ultimate goal is the launch of Safe e₹ (Digital Rupee). CBDC, being a sovereign currency, holds unique advantages of central bank money viz. ·        trust, ·        safety, ·        liquidity, ·        settlement finality ·        and integrity. All the above will encourage our country folks, to quickly adopt e₹ (Digital Rupee) in their day-to-day activities Liquidity denotes that the holders of e₹ (Digita...

With the release of the Concept Paper on ‘CBDC’, by RBI, the movement of CBDC from FinFiction to reality has begun.           India’s CBDC is named e₹ (digital Rupee)           The Concept paper is the first step toward the issuance of e₹ (digital Rupee). Q: What is CBDC? Ans: Central Bank Digital Currency (CBDC) is a digital form of currency notes issued by a central bank. It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency, and shall be accepted as a medium of payment, legal tender and a safe store of value. Q: How will e₹ (digital Rupee) appear on the Reserve Bank of India’s Balance Sheet? Ans: e₹ (digital Rupee)’s will appear as a liability Reserve Bank of India’s Balance Sheet   Q: Are the CBDCs standard across all central banks? Ans: No, the CBDCs are not standard across all central banks. Each cent...