India is one of several countries actively working to integrate Central Bank Digital Currencies (CBDCs) into their financial systems. Over the weekend, the International Monetary Fund (IMF) proposed a framework aimed at facilitating widespread adoption of CBDCs, known as REDI, which stands for Regulation, Education, Design and Deployment, and Incentives. In its latest report, the IMF indicated that many jurisdictions are likely to view CBDCs as crucial policy tools for enhancing financial inclusion in the near future.
The IMF has noted that a new payment instrument such as a CBDC could face multiple challenges in terms of adoption, especially when its performance is currently being tested by only a handful of countries.
Understanding REDI
IMF’s report notes that the CBDC ecosystem must be regulated to ensure the safety of finances. A participation margin for intermediaries has been mentioned by the IMF to ensure oversight by financial regulators of the countries that are experimenting with CBDCs. The report also proposes that the CBDCs must be given the status of a legal tender alongside fiat currencies.
Echoing the insights of global financial experts, the report emphasizes that raising awareness and understanding of CBDCs is vital for promoting their adoption. It highlights the importance of communicating the benefits of CBDCs, collaborating with industry partners to enhance outreach, and leveraging media channels to educate the public. These efforts are identified as key catalysts for driving widespread acceptance of CBDCs.
Regarding the design and deployment of CBDCs, the IMF recommends that governments develop comprehensive strategies for onboarding users and lenders, including incentives to encourage participation. These incentives can take both monetary and non-monetary forms, aimed at enhancing engagement with CBDCs.
“Integrating nonbank entities could significantly expand the reach and accessibility of CBDC; however, they might also introduce complexities into the regulatory framework. Effective management of these challenges requires comprehensive regulatory adjustments to align nonbank standards with the strict security and operational requirements of incumbent financial institutions and the CBDC framework, ensuring stability and security,” the report added.
Current Global Landscape of CBDCs
A recent report from the US-based think tank Atlantic Council indicates that 134 countries, accounting for 98 percent of the global economy, are actively exploring digital versions of their currencies. The report highlights that all G20 nations are now investigating CBDCs, with a total of 44 countries currently piloting these initiatives.
China, Russia, Nigeria, and India are among the countries actively conducting advanced trials of Central Bank Digital Currencies (CBDCs) in both retail and wholesale settings.
About India’s eRupee CBDC
The retail pilot of the eRupee CBDC launched in December 2022, aiming to facilitate peer-to-peer transactions. Recently, RBI Governor Shaktikanta Das announced that the eRupee has already attracted five million users during its retail pilot phase.
Prior to the IMF’s report, India’s central bank had begun incentivising CBDC users for their participation in the trials. In January 2024, several banks, including HDFC, Kotak Mahindra Bank, Axis Bank, Canara Bank, and IDFC First Bank, started disbursing funds related to employee benefit schemes directly into employees’ CBDC wallets instead of their salary accounts. This initiative was designed to boost the adoption and usage of the eRupee.
According to Das, the eRupee is being positioned as a means to internationalise India’s fiat currency. The RBI is actively working to ensure that the eRupee is compatible with UPI QR codes, can process offline transactions, and provides users with financial privacy.
