‘Blockchain not best for digi currency’

India’s central bank may consider other “centralised” technology models apart from blockchain — the popular digital transaction ledger — to host its proposed digital currency, officials and industry experts in the know of the matter. Blockchain may not be the ideal technology due to its massive power consumption, more so in a country like India with its population of 1.3 billion, the sources said.

Instead, the Reserve Bank of India could either offer a “digital Rupee” directly to citizens or use the “retail indirect” method by issuing digital currency to banks that, in turn, offer it to citizens, akin to what China is piloting, senior officials aware of developments said.

Central bank digital currencies (CBDCs) are essentially the digital version of fiat currency and therefore, unlike private cryptocurrencies, which are yet to be approved by the government.

“Blockchain has huge power consumption even if there is a most efficient system. The settlement time is higher and there are permission issues,” said an official aware of the discussions, who said no other country is building its digital currency using blockchain. “There can be an arrangement where RBI and banks use blockchain, but banks can then use other technologies to transact with the customers,” the official said.

On Tuesday, finance minister Nirmala Sitharaman, while presenting the Union Budget, mooted launch of a digital Rupee by RBI during 2022-23, “using blockchain and other technologies.”

Digital guardrails
This leaves the field open for other technologies to be considered.

India’s public digital infrastructure — including universal identification number Aadhaar as well as Unified Payments Interface (UPI) — will act as digital infrastructure rails on which the entire CBDC initiative will run, officials said. This will enable real-time eKYC (through Aadhaar) and automatic money transfer (through the UPI model).

Experts are of the view that India is best placed to launch a CBDC, given its rapid adoption of digital banking and e-payment in recent years. Central banks across China, Russia, the Bahamas and the US are developing or researching the use of CBDC. Fast Times