RBI has recently published a concept note on Central Bank’s Digital Currency (CBDC) - it is available to read here.

I glanced through it and found it pretty interesting. At a personal level, I’m quite hopeful that a well-implemented CBDC can marry the benefits of cash with current pseudo-digital money.


At the moment ~3% of GDP is spent on printing, distributing, and securely storing cash. Moreover, India has around 15-30% of its GDP as a shadow economy (not all of the shadow economy is illegal, but much of it is)

Digital money in its current form (credit card, UPI) has too many entities in the middle to solve for trust. As a result, these entities charge ~2% of the transaction cost from the merchant (which essentially gets passed to customers)

I also believe, a well-implemented CBDC also has a shot to replace USD as the reserve currency of the world. China has already made some progress in implementing digital Yuan (eCNY) - AFAIK, it is primarily targeting transactions between banks (rightfully so)

China’s progress is one of the key reasons why India and RBI are also so keen on CBDC

CBDC & its implementation

Introducing CBDC should not mean that banks lose their relevance, however, it should mean they do high-order things more efficiently. As an example, they should still be the ones doing KYC, however, their recon & settlement process should be way more efficient because of CBDC.

RBI’s concept note on CBDC distinguishes between retail (CBDC-R) and inter-banking entities (CBDC-W) and their respective implementation details.

I think,

  • CBDC can be implemented without using blockchain and yet can be distributed with no single point of failure (think about how SSL/HTTPS certificates work)
  • Direct benefit transfer (DBT) scheme launched by the govt could be more efficient with smart CBDC

TODO: update with the design I think can work without blockchain

Further Reading

  1. Deepening of Digital Payments Report (January 2019) - it was written by a committee that worked under the chairmanship of Mr Nandan Nilekani.
  2. Central Bank Digital Currency – Is This the Future of Money - another interesting speech by Mr. Rabi Sankar, Deputy Governor, RBI. He talks about the difference between currency & money, then presents RBI’s viewpoint. Transcript