The Reserve Bank of India (RBI) plans to increase the number of Central Bank Digital Currency (CBDC) transactions to one million per day by the end of 2023, according to Deputy Governor T Rabi Sankar. This ambitious target comes as the RBI currently records around 5,000-10,000 transactions daily with its retail CBDC, the e₹-R.

CBDCs are a type of digital or virtual currency that is issued and regulated by a country’s central bank. They represent a digital form of a country’s fiat currency and are backed by that country’s monetary reserves. CBDCs are designed to operate and function like traditional money but in a digital form, which can be used for everyday transactions, cross-border payments, and other financial operations.

The RBI’s strategy to boost the use of CBDCs includes leveraging the Unified Payments Interface (UPI) network. “There will be a QR code, and you can swipe the QR code using the CBDC app. If the merchant has a CBDC account, the payment will settle to the CBDC wallet. If the merchant does not have a CBDC account, there will be an option to make payments via UPI,” Sankar explained.

Retail Digital Rupee is currently used by 1.3 million customers and 0.3 million merchants, with 13 banks offering retail CBDC. These banks have partially implemented interoperability, allowing the QR code to be scanned using the CBDC app. Full interoperability for CBDC customers using UPI for payments is expected by the end of the month. The RBI also plans to onboard the remaining 20-25 banks to offer interoperability for CBDC customers, although this may take longer.

Sankar also highlighted the potential of CBDCs to reduce cross-border transaction costs, which currently sit at a high 6% for small-value transactions according to World Bank estimates.

In contrast to Sankar’s positive attitude towards CBDCs, he warned that stablecoins pose an existential threat to political sovereignty, particularly for countries like India. Stablecoins pegged to underlying currencies, while beneficial to certain economies, could create the risk of dollarization and seigniorage transfer to private issuers, replacing the use of the rupee in the economy.

Stablecoins are a type of cryptocurrency that are designed to hold a stable value in relation to a specific asset or group of assets. Stablecoins can be pegged to a currency. They are often used to provide stability in highly volatile crypto markets. Examples of these include Tether (USDT) and USD Coin (USDC), which are not issued by a central bank or government, but by private companies, which weakens the control of the authorities over it.

Sankar suggested that a stable solution would be for each country to have its own CBDC, with a mechanism for these CBDCs to interact and transact with each other.

The RBI is also considering the anonymous aspect of CBDCs, a defining characteristic of the coin. However, Sankar stressed that any decision related to anonymity must be legally supported and consistent with the Prevention of Money Laundering Act (PMLA).