The Reserve Bank of India may do a pilot of its central bank digital currency (CBDC) in the first quarter of the next fiscal year.

“We are on the job and looking into the various issues and nuances related to CBDC. It’s not a simple thing to just say that CBDC can be a habit from tomorrow on,” said P Vasudevan, chief general manager at the RBI’s Department of Payment and Settlement, at a banking event here on Wednesday.

“The banking system has been taking the lead in terms of currency distribution as a tiered model, whether the same model should be accepted for CBDC as well, we will have to see,” Vasudevan added.

As now being explored by the RBI for retail and international trade payments, the CBDC could have a much larger impact on the financial ecosystem, according to industry experts. It will be instrumental in promoting grassroots-level financial inclusivity and modernising the banking sector apart from creating a cashless economy.

Digital replica

While many see CBDCs as a legalised replacement of cryptocurrencies, in reality, CBDCs could just be a digital replica of the physical cash in circulation.

Russia, Japan and China are already working on the same.

According to a 2021 BIS survey, quoted in the RBI report, 86 per cent of the central banks surveyed are actively researching the potential for CBDCs, 60 per cent were experimenting with the technology and 14 per cent were deploying pilot projects.

A major use case for CBDCs will likely be in the insurance and lending space and also for managing non-performing assets. Using digital currencies will bring in more transparency and traceability across levels for the financial services sector, according to experts.