India’s central bank, the Reserve Bank of India, is set to test the e-rupee which is its version of a Central Bank Digital Currency (CBDC). The e-rupee is like the sovereign paper currency but is different as it takes a digital form. It will be accepted as a medium of exchange, a safe store of value, and a legal tender.
The RBI said the e-rupee will appear as a liability on a central bank’s balance sheet. The central bank is currently at the forefront of a watershed movement in the evolution of currency. It aims for digital currency to decisively change the very nature of money and its functions. The RBI in its proposal shared that the e-rupee can be structured as token-based or account-based. It described the token-based CBDC as a bearer instrument like banknotes. This means that the token holder at a given point in time would be presumed to own them.
The Indian central bank said an account-based system would require the maintenance of records of balances and transactions of all holders of the CBDC. It will indicate the ownership of the monetary balances. The RBI said the person receiving a token will verify that his or her ownership of the token is genuine, whereas the account-based CBDC an intermediary verifies the identity of an account holder. Moreover, a token-based CBDC is regarded as a preferred mode for CBDC-R as it would be closer to physical cash and the account-based CBDC will be considered for CBDC-W.
The government institution would be exploring the CBDC-W for the wholesale market for asset classes that are OTC and bilaterally, or settled outside CCP arrangements. But it should be noted that the RBI has been opposing private cryptocurrencies like Bitcoin and the like saying that it’s a threat to India’s macroeconomic and financial stability.