RBI’s digital currency will have anonymity feature for low-value transactions, BFSI News, ET BFSI

The Central Bank Digital Currency (CBDC) that the Reserve Bank of India (RBI) is working on may have an anonymity feature for low value transactions – the level up to which cash transactions are permitted. However, records of higher value transactions will be kept in the ledger, making traceability a feature.

According to sources, the idea is that if a digital currency is to have the utility of paper currency, it must preserve the anonymity feature for day-to-day transactions. To ensure anonymity, the system needs a feature that will remove the details of these low value transactions.

Speaking at an ICRIER event last week, RBI Deputy Governor T Rabi Sankar said what is most likely is that the degree of anonymity will be the same than the anonymity that prevails for the money. “Which means there is anonymity for low value transactions, and beyond a threshold, there is no need for anonymity,” he said. He added that it remains to be seen whether this is achieved by technology – by killing transactions or by law restricting access to the central bank.

The RBI had previously indicated that the proposed CBDC would be used in wholesale transactions. At the national level, the use of CBDC for interbank transactions should reduce the cost of settlement, for example, securities transactions, or to clear UPI payments, banks can use CBDC to make payments instead of blocking their funds.

Sources said there could be wider use of digital currency internationally if there are agreements between central banks to have their digital currency systems talk to each other. If this happens, banks risk losing the money they earn from selling spreads of foreign currencies.

Finance Minister Nirmala Sitharaman, who earlier this year announced the government’s intention to have a digital currency, said the same would be available in the current fiscal year. Sitharaman had cited the benefits of using the CBDC for wholesale transactions between banks, central banks and governments.

With major global fund managers like Blackrock backing the creation of stablecoins – cryptocurrencies backed by US dollars – the outlook for dollarization has improved and the threat of cryptocurrencies has increased.

Sylvia B. Polson