The decline in the use of cash has prompted some central banks to consider issuing a retail CBDC. In India, despite the surge in digital payments, there is, according to a pilot RBI survey on digital payment habits, a sustained interest in using cash for low-value transactions. It would appear that a CBDC at the gross settlement level would be manageable, facilitating settlements, and compatible with other CBDCs allowing expedited international settlements. This will also give the underlying technology time to stabilize.
Technical clarity must be ensured in deciding which underlying technologies can be trusted to be secure and stable. Given the pace of innovation, it may not be easy. The pros and cons of the underlying technologies still need to be considered for large-scale deployment, given the power consumption constraints reported so far. The next step is to build a complete CBDC ecosystem, with its operating mechanisms, institutions and rules that coexist with the current currency, by all means. The two will live together for a long time. As India wants to leverage its fintech startup space and reap the benefits of a digital currency – even though it seems to have decided to recognize the CBDC as the only digital currency – it would do well to exercise the same degree of caution while going ahead to ride a CBDC.
