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How is India’s CBDC development going that is proposed to take a Graded Approach?

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While announcing its tax regime over the digital assets in its Yearly Budget, India has also proposed to create its own CBDC by 2023

The efforts that the country is making towards the development of its own digital currency seem to take another fold. Its development happened most recently regarding the same is where the Reserve Bank of India has said to take a graded approach to introducing its CBDC. India seems to stand firmly with its notion to launch its Central Bank Digital Currency by the year 2022-2023.

Reserve Bank of India has released its annual report on the benefits of Graded approach in terms of fulfilling the objectives of financial stability, monetary policies, an efficient currency operation and payments system. The approach that RBI has proposed is reported to have three steps which will bring little to no disruption to the traditional financial system. 

In its annual report, RBI stated that the Reserve Bank of India has proposed the adoption of graded approach for the introduction of CBDC while taking a step by step procedure through three stages that include Proof of Concept 12, testing and the launch. This news broke out after the central bank mentioned its starting to test and run the CBDC related pilot projects. 

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In the annual budget representation of budget 2022, Finance Minister Nirmala Sitharaman had made the statement that the CBDC would be influential and will make an impact in boosting India’s digital economy. RBI’s annual report outlined how it is looking at digital currency’s advantages and disadvantages along with its impact on the traditional finance sector. 

CBDC’s design would be required to be in alignment with the existing monetary policies and currency system’s structure. At the time, the Reserve Bank of India is looking and cross-checking many elements across different designs of CBDCs so that the ultimate digital currency could co exist with the fiat currency system. 

The plan is to ensure that no disruption should be caused in the country’s traditional financial framework due to the digital currency. The aforementioned Proof of Concept is an exercise that is focused primarily on understanding and determining if the CBDC can be properly executable or if its idea can be further envisioned several times more in the upcoming times. 

RBI currently is in the phase of figuring out the feasibility and functionality of the CBDC’s idea. The Indian budget of this year had introduced a 30% tax over the unrealised gains on crypto and it also mentioned about introducing the legal framework for launching its own Central Bank Digital Currency. 

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