China is taking steps in introducing the world’s first sovereign digital currency or the central bank digital currency (CBDC) rapidly. It is conducting trials in several Chinese cities. As a part of these trials, they have created digital wallets and corporate wallets for eCNY (Chinese Yuan). They have processed several million transactions. The digital currency will have a two-tier system — commercial banks will serve as a gateways to distribute eCNY (just like cash). The currency will be tested for domestic as well as cross-border transactions. Beyond borders, it could use Belt and Road Initiative. It will complement cash and not replace it.

The participating central banks in developing CDBC have decided to proceed with the drawing up of two proof of concept (POC) steps before the trial. The first phase-1 POC commences in March, 2021.

Across the world, 80 central banks are exploring the creation, development and implementation of their own CBDC. India’s RBI lags behind here. India should join the seven central banks which study the feasibility and safeguards for such currency.