There is an array of digital payment methods available in India, e.g. IMPS, UPI, NEFT, RTGS, Wallets, Cards and NETC. Is an additional payment instrument such as CBDC necessary? Though actual users of digital payments are 200 million, there is potential user base of 700 million. Besides, digital payments are accepted at 15 million outlets, against a total potential of 50 million outlets. Thus a new medium of exchange, CBDC can be accommodated.

Paper and metal currency has the cost of making and distribution. Currency is printed at security presses, under the authority of the RBI, and is distributed through 20 currency vaults at its regional offices. These currency vaults feed 4000 currency chests managed by the commercial banks. Bank branches get their cash from these currency chests and the public is served by these branches. The soiled notes are returned to the RBI through the same channel. Thus physical currency is a costlier proposition than digital currency.

CBDC’s design could evolve over a period of time. To begin with, CBDC could ride the existing digital payments infrastructure. CBDC could use technology other than blockchain initially, and can adopt blockchain at a later stage. On the lines of UPI wallet installed on devices, CBDC can also be presented as wallet. A consortium of banks can play the role of distributors of CBDC. Each bank can acquire a million voluntary customers. Anonymity could be introduced through privacy settings gradually. According to Nandan Nilkeni, the proposed digital rupee (CBDC) should remain anonymous. There are concerns pertaining to surveillance if all transactions are recorded and visible. Banks could be encouraged to be proactive by compensating the infrastructure costs of the branches.

RBI must take steps to widen the user base of CBDC. Digital payment literacy should be encouraged by educating the small stores and individuals.