The Reserve Bank of India, the country’s central bank, is likely to avoid using blockchain technology for its proposed digital currency, the “digital rupee” due to the massive power consumption requirement.
The RBI may consider non-blockchain “centralised” technology models to host the digital currency. It could either offer the digital form of currency directly to citizens or use the retail indirect method by issuing digital currency to banks, similar to what China is doing, the Economic Times reported citing senior government officials.
The report added that the Indian government believes that blockchain is an unsuitable technology due to power consumption requirements, especially with a massive population of 1.3 billion.
“Blockchain has huge power consumption even if there is a most efficient system. The settlement time is higher and there are permission issues…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,” a senior official was quoted as saying by the publication.
The currency will be launched under the CBDC or Central bank digital currency initiative. CBDC is the virtual form of a fiat currency. A central bank digital currency is the legal tender issued in digital form. It is also exchangeable one-to-one with government-issued money.
Notably, central banks across China, Russia, and the US are developing or researching the use of CBDC. However, 86% of central banks worldwide were actively researching the potential for CBDCs but only 14% were deploying pilot projects, a survey conducted by the Bank for International Settlements (BIS) in 2021 revealed.
As per the report, the government also plans to use a universal identification number Aadhaar and Unified Payments Interface (UPI) as digital infrastructure to run the entire CBDC initiative.
“This will enable real-time eKYC (through Aadhaar) and automatic money transfer (through the UPI model),” the report added.
India’s finance minister Nirmala Sitharaman on Tuesday said the RBI will introduce a digital currency in the next financial year using blockchain and “other supporting technology.”
“Introduction of a central bank digital currency will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” Sitharaman said on Tuesday while presenting the federal budget.
She said that the introduction of CBDC will boost the digital economy.
The Reserve Bank of India (RBI) had previously indicated the launch of CBDC as it was against the idea of permitting private virtual currencies. It also voiced “serious concerns” around private cryptocurrencies on the grounds that these may cause financial instability.
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