Working Paper No.

: WP 138

A Central Bank Digital

Currency for India?

Barry Eichengreen, Poonam Gupta and Tim Marple

May 2022

National Council of Applied Economic Research

Electronic copy available at: https://ssrn.com/abstract=4552664

 A CENTRAL BANK DIGITAL CURRENCY FOR INDIA?

NCAER Working Paper

Barry Eichengreen, Poonam Gupta and Tim Marple*

Abstract
We review arguments for CBDC issuance in India. These include facilitating payments,
enhancing financial inclusion, enabling the central bank and government to retain control of
the payments system, facilitating cross-border payments, reducing dependence on the dollar-
dominated global payments system, providing an encompassing platform for digital financial
innovation. We then compare progress in India with other countries. In setting an end 2022
target date for issuance, India is in line with the other BRICS, but not with other countries
with comparable levels of per capita GDP, which have been more reluctant to commit to a date.
Nor is it in line with other countries with comparably independent central banks, which have
been more cautious about setting a deadline. Finally, we sketch a roadmap and timeline for
India’s CBDC project going forward.

Keywords: Central Bank, Digital Currency, India, Monetary Systems, Payment Systems
JEL codes: E40, E42, E51, E50, E58, G21

____________________________________________
*The authors thank Tanuj Bhojwani, UdaiBir Das, Ashoka Mody, and, Rakesh Mohan for helpful comments.
Eichengreen and Marple are at the University of California, Berkeley; and Gupta is at NCAER. Comments are
welcome at [email protected] ; [email protected] ; [email protected]

Disclaimer: The NCAER Working Paper Series has been developed in the interest of disseminating
on-going work undertaken by NCAER staff, consultants and invited papers and presentations.
Research presented here is work-in progress that has not received external scrutiny and may be less
than fully polished. The papers carry the names of the authors and should be cited accordingly. The
findings, interpretations, and conclusions expressed in this paper are entirely those of the authors.
They do not necessarily represent the views of the National Council of Applied Economic Research or
those its Governing Body members.

Page | 1

Electronic copy available at: https://ssrn.com/abstract=4552664

 1. Introduction
In her Budget Speech on February 1, 2022, Finance Minister Nirmala
Sitharaman announced the Indian government’s commitment to issuing a digital
rupee. The relevant text was short and sweet, running three sentences in its
entirety. “Introduction of Central Bank Digital Currency” (CBDC) will give a big
boost to digital economy. Digital currency will also lead to a more efficient and
cheaper currency management system. It is, therefore, proposed to introduce
Digital Rupee, using blockchain and other technologies, to be issued by the
Reserve Bank of India starting in 2022-23.”
With this proposal, India joined a long list of countries actively
contemplating issuance of a CBDC.1 But in setting a firm deadline, the
government is also joining a more select subset. As we will see, a majority of
countries with which India might be compared have not set a target date.
Moreover, the minister’s statement raised as many questions as it answered.
How will issuance and circulation of the digital rupee be organized? What is the
content of the passage reading “blockchain and other technologies?” Will the
currency run on a public blockchain, where validation is decentralized; a
permissioned or private blockchain, where only authorized nodes can validate
transactions; or no blockchain, with encryption and security provided in other
ways? Will the Reserve Bank operate a wholesale CBDC, in which the central
bank provides digital currency to authorized banks which then provide it to their
customers, or a wholesale CBDC that is used strictly for interbank settlements?2
Will a retail CBDC eventually follow? 3 In what ways will a CBDC boost the digital
economy? Isn’t there a danger, instead, that a central-bank-backed unit will
crowd out private initiatives designed to facilitate more efficient payments? How
does issuance of a CBDC square with the government’s parallel efforts to clamp
down on cryptocurrency markets, on the grounds that these raise macroeconomic
and financial stability concerns as well as scope for money laundering and tax
evasion? In what sense would a CBDC lead to a more efficient and cheaper
currency management system? Does this simply refer to eliminating, or at least
limiting, the need to print and manage the supply of physical bank notes or to
something more?
No less an authority than the Reserve Bank of India has expressed similar
concerns. Earlier this year, RBI Governor Shaktikanta Das pointed to risks
related to cybersecurity and counterfeiting. No doubt, a CBDC would offer a rich
target to hackers and cyber terrorists. The Reserve Bank’s report on “Trend and
Progress of Banking in India,” issued at the end of 2021, voiced additional
concerns, namely that issuance of a CBDC might have unintended (and

1A 2021 survey by the Bank for International Settlements found that 86 percent of central banks
were researching issues around CBDCs, that 60 percent were experimenting with the technology, and
that 14 percent were in the process of deploying pilot projects.
2As the BIS (2021) writes, “Wholesale CBDCs are intended for the settlement of interbank transfers
and related wholesale transactions, for example to settle payments between financial institutions.”
3At a post Monetary Policy Committee press conference on 8 April 2022, Deputy Governor T. Rabi
Sankar indicated that the RBI will debut a wholesale CBDC, possibly to be followed by a retail
version.

Page | 2

Electronic copy available at: https://ssrn.com/abstract=4552664

 unspecified) consequences for the conduct of monetary policy, financial stability,
and operation of the banking system. 4 The report flagged the nagging question of
whether the RBI should issue a retail or wholesale CBDC, but without providing
further clarity on the answer.
These are among the issues taken up in this paper. Its second section
reviews the arguments that have been advanced for CBDC issuance. These include
facilitating payments, enhancing financial inclusion, enabling the central bank
and government to retain control of the payments system in the presence of
incursions from stablecoins and other digital payments rails, facilitating cross-
border payments, reducing dependence on the dollar-dominated global payments
system, providing an encompassing platform for digital financial innovation. In
addition, it has been argued that first movers in issuing CBDC will be able to set
global standards for CBDC design and tailor those standards to their national
advantage and to the advantage of the domestic high-tech sector.
The paper provides a somewhat skeptical perspective on these arguments.
We argue that many of these arguments for CBDCs have been advanced
uncritically. Their proponents fail to acknowledge that some of these goals can be
advanced at lower cost and at less risk through alternative means. This point is
true generally and, in some cases, especially of India, with its already-existing
universal payments system and ongoing financial inclusion efforts. Other
arguments in favor of CBDCs, in some cases, are logically or practically flawed.
Very few entertain the real downside risks associated with CBDC development,
including hazards to institutional actor, end-users of retail CBDCs, and the
reputation of the central bank.
The third section then compares the state of debate and progress in India
with obvious comparator countries. We show that in setting an end 2022 target
date for completion of its pilot project and for issuance, India is in line with the
other BRICS, but not with other countries with comparable levels of per capita
GDP (which have been more reluctant to commit to a date) or with other countries
with comparably independent central banks (which have been cautious about
setting a deadline, especially one in the near future).
The final section offers some tentative conclusions and a roadmap for India
going forward.

2. The Cases For and Against

The first and perhaps most obvious argument for a CBDC is to facilitate
payments. Consumers use a variety of different means of payment: cash and coin
for hand-to-hand transactions, debit and credit cards for online and point-of-sale
transactions, and bank debits and deposits for paying bills and receiving salaries.
A CBDC could conceivably substitute for these other means. A CBDC would be
4 Financial stability might be placed at risk if bank depositors, at the first sign of trouble, find it easy to
run on their bank by shifting their deposits to the central bank. If such shifts are permanent or
ongoing, the commercial banking system may be disintermediated. Insofar as currency substitution is
facilitated by CBDCs that circulate outside the issuing country, room for independent monetary
policies may be reduced. These are important issues, but they are beyond the scope of this short
paper.

Page | 3

Electronic copy available at: https://ssrn.com/abstract=4552664

 safe and easy to use for transactions at a distance, unlike cash (no small
consideration in an age of pandemics). It would be universally accepted for
transactions within the country, in contrast to credit and debit cards, which
require the merchant to have an electronic connection to the bank or other issuer.
In the case of a retail CBDC, the balance would be transferred between two agents’
electronic wallets, or between their individual accounts at the central bank,
instantaneously and with finality.5 In the case of a wholesale CBDC, the balance
would be transferred between their CBDC accounts at their respective commercial
banks, which would run on a closed circuit or blockchain. The transaction would
cost less than payment by credit or debit card, the argument goes, because the
bank, when issuing and transferring CBDC balances to consumers, would not also
be providing and charging for other services, such a fraud protection, overdraft
protection, and a credit line that generally come packaged together with such
cards. It would cost less than a bank deposit or debit because the transaction
would not go through the interbank payment system, which is costly to operate;
rather, it would go through a dedicated circuit where transfers were limited to fully
funded, final payments.
In the case of India, however, these savings of convenience and cost may be
subject to exaggeration. Electronic payments are already ubiquitous in India.
Modalities include prepaid payment instruments (prepaid smart cards, etc.),
mobile banking, and use of credit and debit cards at point of sale. Figure 1 shows
that the value and volume of such electronic payments has been growing strongly.
To be sure, that growth is somewhat less impressive when scaled by GDP or by a
measure of the size of the financial system, such as M3 (see Figure 2).
Moreover, India already possesses a relatively efficient, encompassing low-
cost electronic payments infrastructure, the Unified Payments Interface (UPI).
UPI is a real-time payments system developed and operated by the National
Payments Corporation of India (NPCI), a nonprofit operating under the umbrella
of the Reserve Bank and the Indian Banks’ Association. UPI instantly transfers
funds between retail bank accounts on a mobile platform (e.g. a smartphone) at
negligible cost. UPI runs on both Android (version 4.2.2 and above) and iOS
(version 8.1 and above). Multiple banks and third-party e-money companies have
introduced UPI-enabled mobile payment apps allowing users to send and receive
money between UPI-linked bank accounts. It can also interface with Pre-Paid
Instruments (PPIs), smart cards, magnetic stripe cards and the like on which
balances can be pre-loaded. As of early 2022, some 300 banks participated in the
system. In its history to date, UPI has hosted some 70 billion transactions, some
as small as one rupee, making it the world’s largest real-time payment system by
transactions. The National Payments Corporation of India is testing a voice-
based version for smartphone users that will work without an internet connection
(using over-the-air programming).6

5 Compliance with know-your-customer rules would mean that the central bank would have to require
identifying information (the People’s Bank of China requires customers downloading its digital wallet
to provide a registered phone number) and/or mean that the size of transactions and balances would
be limited.
6It might be argued that moving these retail transactions onto a blockchain with CBDC would reduce
costs for the NPCI, increase speed of transactions and eliminate disputes. We have yet to see

Page | 4

Electronic copy available at: https://ssrn.com/abstract=4552664

 A retail CBDC would effectively extend these services to the unbanked.
CBDC balances could be loaded to the digital wallet on their smartphones or
could conceivably loaded onto a smartcard (the CBDC equivalent of a bank credit
card), and transferred to the wallet or smartcard of another individual or
merchant without the two parties having to possess bank accounts. But it would
not obviously add value for individuals already possessing a bank account, given
the ubiquity and very low cost of UPI. And if the CBDC is issued on a wholesale
basis, via banks, as officials have suggested will be the case at least initially, then
it will not in fact be available to the unbanked.
This brings us to a second argument for CBDC issuance, on grounds of
financial inclusion. Governments seeking to make income-support payments to
low-income individuals during the pandemic were sometimes stymied by the
absence of a bank account to which to transfer the payment. But if every
individual had an electronic wallet into which CBDC could be transferred, such
financial transfers would become easier to undertake. More generally, a CBDC
wallet available to all, regardless of employment and credit history, would make it
easier for the un- and underbanked to complete financial transactions. This is
why CBDCs have particular appeal to developing countries and emerging
markets, where financial inclusion is a first-order issue.
But the problem of inadequate financial inclusion can also be addressed in
ways that don’t involve a CBDC. Since 2010, the Reserve Bank has required
banks to formulate and implement policies with the goal of enhancing financial
inclusion. These may entail establishing traditional brick and mortar bank
branches in rural areas or providing banking services through nonbank partners
and agents. Table 1 shows how the number of commercial bank branches (per
100,000 adults) has been growing. This number still lags behind some other
comparator countries (Brazil, Morocco, Russia) but exceeds others (notably
China). The number of ATMs has also been growing, although this number per
100,000 adults still lags far behind its analog in comparator countries (Figure 3).
The government has also launched a mobile app Jan Dhan Darshak (JDD) to
enable smartphone users to locate bank branches, ATM, post office banking
facilities etc. Data from this app show that the number of villages not having such
a banking touch point within five kilometers had declined to low levels by 2021
(see Figure 4).
Financial inclusion plans have also extended to the creation of Basic Savings
Bank Deposit Accounts (BSBDAs), no-frills accounts that do not require the
maintenance of a minimum balance. Table 2 shows that these have been growing
strongly. The holder obtains an ATM/debit card and passport services free of
charge. The bank then allows a certain number of deposits and withdrawals per
month free of cost.7 Banks generally pay the same rate of interest as on regular
accounts.
In addition, Pradhan Mantri Jan Dhan Yojana (the Prime Minister’s
People’s Wealth Scheme), established in 2014, charges public sector banks
(including the State Bank of India, the Reserve Bank, Canara Bank and Bank of

evidence.
7 Some banks also provide other services, such as a checkbook, email statements and demand drafts.

Page | 5

Electronic copy available at: https://ssrn.com/abstract=4552664

 Baroda, along with regional rural banks owned and operated by the government)
with offering zero balance, low-cost bank accounts to underbanked rural
residents. As of 2021, more than 400 million such accounts had been opened,
although some 15 percent of these were inactive, and some were opened as second
accounts by individuals already possessing a bank account. 8 (For details see
Table 3 and Figure 4.) Usage of many of these accounts was sparing initially,
though the frequency of transactions appears to have been rising with time, as
account holders gain experience and familiarity with banking services.
But whereas “only” some 20 percent of India’s population is unbanked, half
of all Indians do not own a smartphone capable of downloading a central bank
app and digital wallet and transacting over a 3G network (minimal conditions for
making internet-enabled payments using a CBDC).9 (See Figure 5.) The Reserve
Bank of India has recognized this constraint; in March of 2020 it launched an
initiative to make UPI available not just to smartphone users but also to feature
phone users, feature phones having limited processing and storage capacity and
being unable to access the internet (RBI 2022). One can imagine that capacity to
transact using CBDC through feature phones may follow. Adequate 3G coverage
may also be lacking in some of the relevant (relatively remote) areas. The same
problem extends to internet connectivity more generally (see Table 4). Some
projects have focused on addressing these issues in CBDC design – as with
exploring offline CBDC payments functionality, for example.10 But any
improvement in financial inclusion arising from a CBDC would require
concurrent efforts to address the ancillary causes of exclusion. For the moment at
least, it would appear that there are more direct ways of effectively fostering
financial inclusion.

8An account is treated as inactive in these data if there were no transactions in the preceding two
years.
9The penetration of basic mobile phone is, of course, much higher. On the other hand, not a few
Indians own multiple smartphones, meaning that the number of individuals who can utilize a CBDC
wallet may be lower than the raw ratio.
10Thus, Bank of Ghana (2021, p.27) writes “From a perspective of technology, it is feasible to
implement an offline eCedi [Ghana’s prospective CBDC] with a smartcard (potentially – with a
smartphone) using standard interfaces like NFC or Bluetooth. Transactions for offline payments are
therefore instantly settled without accessing a backend system.” How this would work in practice is
still being explored by computer scientists and hardware designers. Preloading CBDC with a unique
digital signature onto a smartcard inserted into a smartphone eliminates the danger that the same
CBDC will be used for multiple offline payments. Two smartphone users could in principle then
transfer funds between their respective smartphones using Bluetooth or near-field communication
(NFC). Or merchants might have a smart “point of contact” or other piece of hardware that could
communicate by Bluetooth or touch with the retail customer’s smartphone. The payment is peer-to-
peer without any intermediary and clears instantaneously. The accounting system is then updated
when reconnection to the network happens. A paper from Visa (Christodorescu et al. 2020) explains
how this might work. But not only are the required software and hardware still largely hypothetical at
this stage, but users will require a smartphone, which is a constraint in countries such as India, as just
noted. One can also imagine CBDC being loaded onto smartphone alternatives (keyfobs, wristbands)
that could then be plugged into a desktop, laptop or similar device and updated when reconnected to a
network, but how much these devices would cost and how they would work are unknown at this stage.
This approach might also heighten risk of loss (since keyfobs are easy to misplace), and the size of
offline transactions would have to be limited to conform to anti-money-laundering and know-your-
customer rules.

Page | 6

Electronic copy available at: https://ssrn.com/abstract=4552664

 A third rationale sometimes heard for CBDC issuance is to enable the central
bank and the government to retain control of the payments system in the face of
stablecoins and other private payment rails. This is a way of understanding how
Facebook’s announcement of its prospective stablecoin, initially dubbed Libra,
galvanized so many central banks to begin thinking about a CBDC.11 Ensuring the
stability and soundness of this essential public utility is a key aspect of the central
bank’s mandate. The fear is that, if payments migrate away from UPI and toward a
private-label stablecoin, the central bank will then have limited insight into the
operation of the payments system and limited ability to ensure its integrity. A related
danger is that payments will migrate to a single large private provider with market
power over both payments and related services. Another related argument is that the
central bank’s oversight of the payments system provides it with valuable real-time
information on the state of the economy, and that there would be costs of losing this
were payments to migrate to a private system.
If the concern is the concentration of payments in a single or small set of
private hands, then the obvious solution is to strengthen regulation of those private
providers. This is the approach taken, for better or worse, by the Chinese authorities
when cracking down on Alipay and WeChat Pay. These providers were required to
share more information with the authorities and to build firewalls between their
payments data and other operations. Similarly, and less aggressively, other countries
have been moving quickly to regulate the private digital currency market in order to
ensure safe operations, protect consumers from harm, and to mitigate systemic risk
to the financial system.
But these efforts do not require the issuance of a CBDC. Instead, they can be
informed by decades of financial markets regulation precedent. In the case of India,
similarly, opinion and policy seem to have shifted away from earlier discussions of
possibly banning crypto assets that may be used for digital payments toward
adopting appropriate regulation. In particular, if private nonbanks take on more
payments responsibilities of the sort traditionally executed by banks, then they can
be regulated like banks. Stablecoins are beginning to be used for payments, mainly
in the cryptosphere but possibly, in the not-too-distant future, more widely.
Governments are responding, appropriately, by asking whether stablecoin issuers
should be required to take out bank charters and otherwise be regulated like banks.
This would seem to be a more appropriate response to concerns about losing control
of the payments system than issuing a CBDC.
As for the real time information about the economy, there exist myriad other
sources of real-time information: financial market data, cellphone location data, web
traffic data, etc.
Yet another argument is that a CBDC could facilitate cross-border
transactions, making life easier for Indian exporters and importers. A digital rupee
that could be seamlessly exchanged for, say a digital dollar or a digital euro would
eliminate the need for an India firm seeking, for example, to import machinery
from the United States to have to instruct its bank to contact a correspondent bank
in the United States via SWIFT, transfer funds there, and then instruct the
correspondent to credit the bank where the exporter maintains an account. Both

11 As of 2022, Libra nee Diem is no more, but this doesn’t change the fundamental point.

Page | 7

Electronic copy available at: https://ssrn.com/abstract=4552664

time and expense would be saved, particularly on small purchases and transfers,
where the share of the principal dissipated in bank fees can be considerable.
But this argument overlooks two points. First, there already exist alternative
nonbank mechanisms for making small purchases and sales abroad. The most
ubiquitous of these is the credit card. In addition, Paypal, while no longer providing
domestic payments services in India (due, presumably, to the ubiquity and low cost
of UPI), continues to process international sales for Indian merchants (in 2020,
$1.4 US billion worth of sales by some 360,000 merchants). Google Pay can be
used both for domestic payments and to send money from the United States to
India, Google having partnered with Western Union and Wise (formerly
TransferWise).12
It may be that officials are uncomfortable using international as opposed to
home-grown platforms for these transfers. This may be a matter of national pride
(a noneconomic argument that, as economists, we are not qualified to comment on
here). Or it may be regarded as a national security matter: recall how PayPal and
Google Pay suspended their operations in Russia in March in response to that
country’s war on Ukraine. Officials may also be concerned about data privacy and
the uses to which these commercial payments platforms put their customers’
transactions data. In principle, however, this issue can be addressed through
regulation and legal action rather than by creating a central-bank-based alternative.
Thus in 2020 the Delhi High Court issued a notice in response to a complaint that
Google Pay was illegally sharing sensitive personal user data. In 2021, in response,
Google updated its policy to allow users to delete sensitive data from the company’s
internal network.
Second, it is not clear that CBDCs can in fact be used to seamlessly complete
cross-border transactions. Cross-border transfers of digital rupees will be subject to
all the same capital account restrictions as existing rupee-denominated transfers,
the only difference being that the RBI will be directly responsible for monitoring
and enforcing compliance in the case of a retail CBDC (commercial banks and other
authorized intermediaries remaining responsible in the case of a wholesale CBDC).
If that U.S. exporter is able and willing to accept digital rupees in payment (itself a
dubious proposition), he or she will then face the challenge and cost of converting
these into (nondigital or perhaps digital) dollars. The Federal Reserve System in
conjunction with the Reserve Bank of India could conceivably provide this service.
The two central banks could establish a special platform (or “corridor”) where
authorized dealers (designated banks from the two countries) can convert the
national CBDC into a depository receipt, at which point the CBDC is burned
(extinguished) and then convert that depository receipt into the other CBDC, at
which point additional CBDC is minted. The Bank of Thailand and Hong Kong
Monetary Authority have been jointly exploring the possible operation of such a
corridor. Alternatively, two and more national CBDCs could circulate on the same
blockchain, allowing them to be automatically exchanged for one another at a rate
determined by supply and demand.

Note, however, that the Google Pay app can be used for transfers between individuals but not
12

merchants.

Page | 8

Electronic copy available at: https://ssrn.com/abstract=4552664

 The technical obstacles to CBDC interoperability are surmountable, which is
why various central banks and the Bank for International Settlements’ Innovation
Hubs have been exploring them. The mCBDC is one key example of international
cooperation that seeks to overcome this technical hurdle in concurrent development
with state-level CBDC projects. But the governance obstacles to this arrangement are
formidable. The participating central banks would have to agree on an architecture
for their corridor. They would have to jointly govern its operation. They would have
to license and regulate dealers holding inventories of currencies and depository
receipts to ensure that the exchange rate inside the corridor doesn’t diverge
significantly from that outside. They would have to agree on who provides
emergency liquidity, against what collateral, in the event of a major order imbalance.
None of these traditional governance issues are inherently solved by the technical
features of a CBDC, and few gains from CBDC cross-border payments can be realized
without this type of governance coordination.
In a world of 180 currencies, moreover, arrangements of this type would
require scores of bilateral agreements. We have already seen the resulting
proliferation of agreements in the fast-payments domain (fast payments systems
like UPI and operating through banks being entirely different from CBDCs, as noted
above). For example, Singapore negotiated one such agreement with India and
another with Malaysia in 2021; the details of the link will have to differ in the two
cases, since the architectures of the Malaysian and Indian fast-payments systems
differ. The same would presumably be true of CBDC linkages. And corridors of
more than two countries would require rules and governance arrangements more
elaborate than even those of the World Trade Organization and the International
Monetary Fund.
Relatedly, one sometimes hears suggestions that a CBDC is desirable for
geopolitical reasons. Having a CBDC, it is asserted, would free the issuing country
from “the tyranny of SWIFT” – in other words, from the risk that its banks would be
barred from using the Society for Worldwide Interbank Financial Transactions, the
secure messaging system through which banks send transfer instructions to their
branches and correspondents in other countries. Here it is important to be clear
what SWIFT is and is not. SWIFT is a secure messaging system through which
payments instructions are transmitted; it is not itself a set of payments rails. As
payments rails, banks use Fedwire (in the U.S.), CHAPS (in the UK), or an
analogous system in another country. Issuing a CBDC would not create an
alternative to these systems. Thus, for nearly a decade China has been developing
its own set of cross-border payments rails, its so-called Cross-Border Interbank
Payments System (CIPS), through which renminbi payments can be transferred
between domestic and foreign banks. But CIPS uses SWIFT for sending
instructions between participating banks. All this is separate from the e-CNY, and
it is not obvious that the operation of CIPS would be significantly enhanced by
cross-border use of the e-CNY. Were such enhancements in the cards, we would see
SWIFT changing its operations in response to the rollout of the e-CNY. We do not.
The argument linking CBDC issuance to “the tyranny of SWIFT” are a logical non
sequitur.
Yet another argument for a CBDC is to provide an encompassing platform for
the design and dissemination of smart contracts and other DeFi applications. Smart
contracts are loan (and related) financial instruments that do not rely on

Page | 9

Electronic copy available at: https://ssrn.com/abstract=4552664

intermediation and monitoring by a bank or equivalent financial institution. They
can be built on a public blockchain, whose nodes then verify the transaction, which
can be executed using the native coin circulating on that blockchain (as well as
other tokens defined in that chain). Currently, the majority of DeFi transactions
run on Ethereum’s public blockchain, where Ether is the native coin. The smart
contract terms and transactions are actually denominated in U.S. dollar-
denominated stablecoins, but Ether is required to execute the payment and pay the
transactions fees on the network. Since Ether is a “plain vanilla cryptocurrency”
whose value against central bank issued currency can (and does) fluctuate widely,
this introduces an element of cost uncertainty that reduces the appeal of DeFi
transactions.13 And Ethereum is not the only public blockchain on which smart
contracts are built; the resulting fragmentation arguably limits efficiency gains. A
CBDC, in contrast, would be stable in terms of central bank money (since it is
central bank money); costs of transacting would be predictable; and it would be
universally accessible. A CBDC-based smart-contract platform, it is argued, would
be a hothouse for financial innovation.
The counterarguments are of three types. First, if the problem is that plain-
vanilla cryptocurrencies like Ethereum are volatile, then the same services could be
provided by a vigorously regulated private-label stablecoin. This would overcome a
serious market obstacle to CBDC smart contracts, namely government competition
in private financial services markets, which can produce its own set of inefficiencies.
Second, central banks may have reasons to avoid placing their CBDCs on a public
blockchain on the grounds that this is vulnerable to hacking and other security
problems. They may prefer a private blockchain where only the central bank itself
can verify and finalize transactions, or they may prefer to use another non-
blockchain-based form of encryption. But if the CBDC runs on a private blockchain
with centralized verification, then it cannot provide a platform of smart contracts
and other forms of decentralized finance.
Third, there are still reasons for doubting that smart contract-based
decentralized finance is the future. There have been a number of prominent
disasters with smart contracts running on Ethereum’s blockchain due to
programming errors. Smart contracts have been mechanisms for siphoning off the
funds of naïve investors by hackers. In most of these instances, programming
problems were subtle and remained hidden despite security audits and code reviews
(Allen et al. 2020). One wonders whether digital auditors working for central banks
can do better.
This third reason for doubt is compounded by the almost entirely
undeveloped technical requirements for a programmable CBDC, premised explicitly
on the degree to which these instruments can and should be programmable. Smart
contracts stand as a high-tier level of programmable CBDC comparable to
Ethereum, however, many other lower tiers of programmability – such as simple
API access and cryptographic keys, for example – also fall under the umbrella of
programmable money. In this respect, it is not only critical for central banks to
investigate precisely why, and to what end, they are creating a programmable CBDC

13This leads many to prefer using US dollar-denominated stablecoins, at least in principle. However,
these come in a range of operational models and are subject to little oversight and regulation, which
similarly diminishes their attractions.

Page | 10

Electronic copy available at: https://ssrn.com/abstract=4552664

– it is also crucial to conduct the necessary technical research and feasibility probes
to identify areas of technical vulnerability that arise from any given model.
Relatedly, there are questions about whether DeFi can replace relationship
banking. Soft information of the sort that bank loan officers assemble from face-to-
face interaction with borrowers may not be replicable in the digital sphere. In
addition, on-chain systems like DeFi have available only borrowers’ on-chain
financial records.14 Holdings of cryptocurrencies appear to be concentrated in
practice, giving grounds for worrying about, inter alia, market manipulation. The
fact that the cryptocurrencies around which DeFi transactions are organized are
volatile makes borrowing expensive; borrowers have to overcollateralize (offer
collateral worth more than what they borrow) in order to protect against sharp falls
in the value of that collateral. All these are reasons to question whether DeFi will
transform finance as we know it.
Yet another argument for moving quickly to issue a CBDC is the advantages
of being first. Actually, it is not clear why being first should be especially
advantageous or, conversely, why it should be costly to wait until there exists a
proven technology. One argument is that the central banks that move first will be
able to define global standards for CBDCs. But it is not clear that other countries
will be forced to adopt the exact same technology standards as the first movers, any
more than central banks all have to adopt the same standards and technologies as
the first bank note issuers. Bank notes continue to differ, after all, in inter alia their
security and anti-counterfeiting technologies (special papers, watermarks,
luminescent inks, embedded holograms, etc.). Concerns with interoperability may
provide an incentive to converge on an early standard but, as we have argued, hopes
for interoperability are overblown. It is said that countries moving first will have a
leg up on providing technical assistance to later movers, thereby capturing market
share for their high-tech sector. But in fact there is no reason why the technology
should be developed in the same country that utilizes it for its CBDC. The Bank of
Canada and Bank of England, to cite two examples, are partnering with MIT, not
with Canadian or British universities, in developing its CBDC-related technology.
And that the Federal Reserve is moving slowly relative to other central banks in
preparing to issue a CBDC has not hampered the competitiveness of MIT as a
technology supplier. Notably, there have also been clear issues in the early CBDC
projects that have recently gone live, especially complications arising in the rollout
of Bahama’s CBDC, the Sand Dollar, and Nigeria’s, the e-Naira. The capacity for
achieving domestic policy priorities in both cases was hampered by a lack of
concurrent development in underlying infrastructure, providing important lessons
on the whole-of-economy considerations implicated in these projects.
Finally, there are a wide variety of downside risks associated with rapid
CBDC development that specifically implicate end-users. Key among these is the
technical design and monetary nature of a CBDC. In this respect, current projects
vary between two basic models: bearer instruments and account-based access.

14One can imagine a DeFi future in which banks use on-chain and off-chain data to generate a more
accurate picture of customers’ financial worth in order to craft attractive loan terms. Alternatively,
one can imagine crypto companies obtaining bank licenses in order to secure additional off-chain
information. We are not yet, and whether regulators will permit this kind of on- and off-chain
convergence remains an open question.

Page | 11

Electronic copy available at: https://ssrn.com/abstract=4552664

Whereas bearer instruments introduce the same privileges and constraints as
physical cash, account access frameworks more closely resemble retail banking
accounts with distributed liabilities. Vulnerable populations – even in economies
rife with digital payments – often rely on physical cash for its bearer instrument
characteristics, and India’s 2016 experience with the initial rollout of
demonetization demonstrates the pitfalls of rapid changes to cash-based segments
of the economy. In this respect, rapid CBDC development in the efforts of moving
first may harm vulnerable end-users of physical cash in two specific ways. First, if
the CBDC competes too much with physical cash – for example, mandating
acceptance among merchants in ways that limit cash transactions – then this could
disenfranchise vulnerable end-users from key goods and services. Second, if the
CBDC is implemented through an account access framework, its capacity to
genuinely expand financial inclusion – a stated goal of several projects, including
India’s – would be severely limited without a parallel effort to target other causes of
financial exclusion, including infrastructural issues.
All of which is to say that the case for an Indian CBDC on a fast-track
schedule may be less compelling than it first appears. At the very least, CBDC
development requires significantly greater trade-offs than current accounts often
discuss, and these must be carefully considered in India’s potential project.

3. The State of Play

In this section we consider the state of central bank digital currency (CBDC)
development in countries which may reasonably be compared to India. We take four
approaches to forming the comparison group, which we refer to as economic,
institutional, categorical, and technological: we consider countries with similar GDP
per capita in purchasing power parity terms (the economic comparison); countries
where the central bank has a similar degree of independence (the institutional
comparison); other members of the so-called BRICS, large developing and middle-
income countries with which India is frequently grouped (the categorical
comparison); and countries comparably ranked to India on WIPO’s technology
competitiveness index. In each case we limit the sample to the four closest
comparators.
Table 5 shows the three collections of countries that are closest toIndia along
each of those measures, respectively based on World Bank’s most recent estimate of
GDP per capita in purchasing power parity, Garriga’s (2016) data for central bank
independence, a binary indicator of whether a country is a co-member of BRICS,
and the ranking from WIPO for global technological competitiveness. Different
readers may prefer different comparison groups; we focus on all three.
Table 6 next lists eight widely stated policy and economic motivations and
rationales for CBDC projects initiated by central banks around the world. (All data
are based on public announcements between January 2013 and December 2021.)
The Indian government and the Reserve Bank have recently released a report
endorsing a CBDC as “a safe, robust and convenient alternative to physical cash,”
with the intent of focusing on the policy goals in their technical design of a basic
CBDC model (Reserve Bank of India, 2021; Singh, 2021). In a July 2021 speech,
Deputy Governor Sankar detailed the associated motivations and policy priorities,

Page | 12

Electronic copy available at: https://ssrn.com/abstract=4552664

including fostering financial inclusion (through reduced payment-associated costs),
responding to the declining use of cash (especially physical cash), the desire to
enhance the efficiency of banking (particularly the reliability of these systems),
facilitating international payments, and heightening fiscal transparency (Sankar,
2021).
Some of these motivations are shared nearly across the board, including
improvements in financial inclusion, domestic banking efficiency, and cross-border
international payments. Some counterparts share other motivations with India,
such as Brazil, Sweden, Norway, and Ukraine in declining cash usage, and Sweden
and China in pursuing greater fiscal transparency in domestic operations. Some
case countries exhibit motivations not shared publicly by India, suchas pursuing
CBDC primarily as a precautionary project in case other countries move quickly
(including Norway and Singapore). Whereas some countries appear to have very
specific, focused motivations (Russia’s wish to circumvent targeted financial
sanctions, Nigeria’s concern with cost and ease of cross-border payments), the Indian
governments motives are more eclectic (some would say “less focused”).
Table 7 then summarizes the initiation of CBDC development in each
country, the latest publicly announced stateof development, and target dates for
next steps, if any. India’s initial expression of interest came relatively late, in 2019;
only Nigeria and the Philippines were later. In announcing the intent to launch a
pilot project in December 2021, India is more or less in line, temporally, with the
other countries, which made similar announcements slightly earlier or
concurrently. In setting an end 2022 target date for completion of that pilot project
and issuance, India is in line with the other BRICS, interestingly, but not with other
countries with comparable levels of per capita GDP (which have been more
reluctant to commit to a date) or with other countries with comparably independent
central banks (which have been cautious about setting a deadline, especially one in
the near future). Notably, among its comparably competitive peers in the index of
global technological capabilities, India’s announcements trail behind others which
began in 2018-19, and most of which are in the pilot stage.
Table 8 reports publicly stated preferences for CBDC design based on the BIS
typology and Auer and Bohme (2020). This typology distinguishes four main
technical features of all retail CBDCs and the distinct options available within each
of them. Architecture refers to the actor(s) liable for claims made in CBDC; this
could take the form of direct accounts with central banks, more traditional
(indirect) architectures intermediated by private banks, or a hybrid model.
Infrastructure refers to the nature of the technical ledger system that manages
issuance and supply; this could take the form of distributed ledger technology, more
conventional centralized ledgers, or a hybrid approach. Access refers to the logic of
how CBDC ownership and custody is recognized and validated; the BIS organizes
this as either an account (identity-based), token (bearer instrument), or hybrid of
the two. Finally, interlinkage indicates whether a CBDC is designed to have cross-
border interoperability; this is simply a binary.
In the aforementioned report, the Reserve Bank of India appears to suggest
that a hybrid architecture -- in which the CBDC is a claim on the central bank,
which periodically records retain balances but in which authorized intermediaries
(banks) onboard users, enforce know-your-customer rules and handle retail

Page | 13

Electronic copy available at: https://ssrn.com/abstract=4552664

payments -- will be the best option for developing a safe and reliable alternative to
physical cash. However, the report notes that such technical decisions are
particularly difficult in the case of retail CBDC design, and that the “magnitude of
issuance/ distribution will also help in identifying the appropriate underlying
technology best suited to handle such operations” (Reserve Bank of India, 2021, p.
5). This hybrid architecture similarly seems to be the most popular choice among
comparator countries that have expressed a preference for a system operated
directly by the central bank (Singapore) and for a system where the CBDC is a claim
on an intermediary, not on the central bank (China). In terms of infrastructure,
modalities for access (tokens versus accounts versus both), and interlinkages
(including with other digital currencies at home and abroad), the intentions of the
Indian government and the Reserve Bank remain unspecified, so far as we can tell.
This may reflect the fact that there is no consensus, globally as well as nationally,
about these aspects of a CBDC’s design, as is evident in the table.

4. Conclusion
When so many central banks and governments around the world are
contemplating issuance of a CBDC, it is prudent for officials in India to likewise
contemplate the possibility. Although the authorities’ initial expression of interest
came relatively late, compared to the other countries we consider, it has since been
making up ground. The timing of its announcement to commence a pilot project
was in line with other countries. Its announced intention of the date by which to
complete that pilot and issue its CBDC is similarly in line with announcements from
other BRICs but more ambitious than in other countries with a similar per capita
GDP and similar levels of central bank independence.
But important questions remain to be answered. India has not yet gone as
far as other countries in specifying the design architecture that will govern the
operation of its CBDC. A pilot requires an explicit design architecture. Effectively
rolling out a CBDC and ensuring that the benefits are widespread requires
initiatives on multiple fronts: fostering wider smartphone penetration, specifying
data privacy and know-your-customer rules, and verifying banks’ technical
preparation, as described in Soderberg et al. (2022). The central bank will have to
build durable, reliable relationships with software suppliers, on the plausible
assumption that it does not possess all the relevant expertise in house. The
experience of the East Caribbean Central Bank, which contracted with a Barbados-
based fintech, Bitt, and whose CBDC, known as DCash, went offline for several
months in early 2022 due to an expired system security certificate on the
blockchain hosting the ledger, leaving users in the lurch, is a cautionary tale.15 Such
episodes can permanently damage confidence in a country’s money; India’s own
experience with demonetization is a reminder of the importance of preparing
infrastructure and implementation capacity in advance of a comprehensive
rollout.16 How long completing these tasks will take is uncertain. In light of those

15 Evidently, neither the central bank nor Bitt knew of the expired-license problem in advance.
16To address these risks, some countries, China for example, are attempting to build in off-line
functionality, where the CBDC can be used for transactions even when the central ledger is inoperable
– for example, by permitting hardware-based transactions between pair of wallets or cards embedded
in two different smartphones. But absence of access to the central ledger created the danger of double

Page | 14

Electronic copy available at: https://ssrn.com/abstract=4552664

uncertainties, specifying an end-2022 target or deadline strikes us as premature.
Rushing may result in problems that prevent the initiative from becoming a success.
Although officials have offered a number of policy rationales for going down
this road, we have argued that the case is weaker than they suggest, and that it is
weaker than in other countries with which India might be compared. If the country
continues to go forward with its CBDC plans, then it is incumbent on officials both
to defend and elaborate their rationales and to fill in the gaps on the design front.
In view of the range of questions still to be answered, India should take a
cautious and gradual approach toward launching a CBDC. To start, it may take a year
for the RBI to form and make available an analysis of the rationale, impact, scope,
design and the pace of the launch first of its CDDC pilots and then the digital
currency itself. It will need to assess the readiness of the banks, other financial
intermediaries, and the public to use that digital currency; its impact on the conduct
of monetary policy and its transmission; and its implications for capital flows, the
exchange rate, and the composition and management of foreign reserves, if any. It
would be appropriate, as has been the practice for other initiatives, to constitute and
consult expert groups and to put their analyses and recommendations in the public
domain.
It could then take an additional two-three years to run pilots and assess their
results. In the Indian context it will be important to analyze the benefits and
challenges of CBDC availability for population groups with different levels of literacy,
access to the hardware, and internet connectivity, and to adjust design and rollout
strategies in light of this analysis.
Following this pilot period, a more general rollout of the CBDC can be
envisaged. As indicated by the RBI, cash will continue to coexist with the digital
currency for the foreseeable future. In addition, it is important to understand that
the CBDC will be used primarily for domestic transactions, requiring the continued
existence of alternative vehicles for cross-border transactions.
A final point: rolling out a CBDC is not going to make stablecoins and plain
vanilla cryptocurrencies go away. Quite separate from discussions around possible
issuance of a CBDC, the relevant governmental agencies can learn from their
experience. They can learn faster if they first put the relevant regulatory systems in
place.

spending, which has led the PBoC to limit the number of permissible offline transactions, and the
danger of counterfeit transactions, since the central ledger will not be available for verifying
authenticity. Central banks are exploring the use of digital signatures and encrypted storage to
address these problems. The experience of the Bahamas has revealed yet another problem also
relevant to India: such direct phone-to-phone transactions presumably still have to go through a cell
tower, and hurricanes and monsoons have been known to topple such towers.

Page | 15

Electronic copy available at: https://ssrn.com/abstract=4552664

 Figure 1: Electronic Payments in India
A. Total Electronic Payments (Value) B. Total Electronic Payments (Volume)
30000 7

25000 6

5
20000
INR billions

Billions
15000
3
10000
2

5000 1

0 0

Jul-2020
Jan-2014

Jan-2015

Jan-2016

Jan-2017

Jan-2018

Jan-2019

Jul-2021
Jan-2020

Jan-2021
Jul-2014

Jul-2015

Jul-2016

Jul-2017

Jul-2018

Jul-2019
Jan-2014

Jan-2015

Jan-2016

Jan-2017

Jan-2018

Jan-2019

Jul-2020

Jul-2021
Jan-2020

Jan-2021
Jul-2014

Jul-2015

Jul-2016

Jul-2017

Jul-2018

Jul-2019

Source: Payment System Indicators, RBI database.

Note: Total electronic payments include Prepaid Payment Instruments (PPI), Mobile banking, NACH,
IMPS, CTS, and cards at PoS. PPIs facilitate transactions or fund transfers against the value stored in the
payment instrument like smart cards such as the one authorized by Delhi Metro Rail Corporation
Limited. Mobile banking is service provided by banks that allows customers to conduct financial
transactions remotely using a smartphone device. National Automated Clearing House (NACH) helps
banks, corporate houses, governments and other financial institutions to make bulk payments.
Immediate Payment Service (IMPS) is an electronic inter-bank fund transfer system using mobile phones
as the medium. The Cheque Truncation System (CTS) allows clearance of cheques between banks using
an online image based clearance method. Cards at Point of Sale (PoS) is the sum of credit and debit cards
used for making transactions at the corresponding location of sale.
Total value of electronic payments have increased from around INR 6500 billion in January 2014 to more
than INR 23,000 billion in December 2021.

Page | 16

Electronic copy available at: https://ssrn.com/abstract=4552664

 Figure 2: Electronic Payments in India as Shares of M3 and GDP
A. Total Electronic payments as % of M3 B. Total electronic payments as percent of nominal
GDP
16
45
14
40
12 35

10 30

Percent
25
Percent

8
20
6 15

4 10
5
2
0

Q3 2019-20

Q3 2021-22
Q1 2020-21
Q1 2014-15

Q1 2015-16

Q1 2016-17

Q1 2017-18

Q1 2018-19

Q3 2020-21
Q3 2014-15

Q3 2015-16

Q3 2016-17

Q3 2017-18

Q3 2018-19
Q1 2019-20

Q1 2021-22
0
Jan-2014

Jul-2021
Mar-2018

Jan-2019
Nov-2014

Sep-2015
Feb-2016

May-2017

Nov-2019
Apr-2020
Jun-2014

Jul-2016
Dec-2016

Oct-2017

Aug-2018

Feb-2021
Jun-2019

Sep-2020

Dec-2021
Apr-2015

Source: Payment System Indicators, RBI database and National Accounts Statistics.

Figure 3: ATMs per 100,000 adults

250

200

150

100

50

0
2012 2015 2017 2020

India China Sweden South Africa Mauritius Singapore

Turkey Brazil Ukraine Thailand Russia

Source: Payments and financial market infrastructures, Red book statistics for CPMI (Committee on
Payments and Market Infrastructures) countries, Bank for International settlements (BIS). Population
data is from WDI, World Bank

Page | 17

Electronic copy available at: https://ssrn.com/abstract=4552664

 Figure 4: Number of Pradhan Mantri Jan Dhan Yojana (PMJDY) Accounts

PMJDY Accounts (in tens of INR millions) Operative PMJDY Accounts

(in tens of INR millions)
36.9
43.0 34.9
40.4
36.8 30.2
32.5 26.3
30.1 23.2
24.1
17.9

Aug'15 Aug'16 Aug'17 Aug'18 Aug'19 Aug'20 Aug'21 Aug'17 Aug'18 Aug'19 Aug'20 Aug'21

Deposits Under PMJDY Average Deposit per PMJDY

(in tens of INR millions) (in rupees)
146230
130086 3398
3219
102415 2783
2521
82039 2187
65094 1747
1279
42094
22901

Aug'15 Aug'16 Aug'17 Aug'18 Aug'19 Aug'20 Aug'21 Aug'15 Aug'16 Aug'17 Aug'18 Aug'19 Aug'20 Aug'21

Rupay card issued to PMJDY Account No. of villages not having banking touch
holders (in tens of INR millions) point within 5Km in Jan Dhan Darshak
(JDD) App
31.2
29.2 29.8 11278

24.5
22.8
19.0
6693
15.7

2672
1198 814 517 356 256

Aug'15 Aug'16 Aug'17 Aug'18 Aug'19 Aug'20 Aug'21 Oct'19 Jan'20 Apr'20 Jul'20 Oct'20 Jan'21 Apr'21 Jul'21

Source: PMJDY Progress Report, Press Information Bureau (PIB August 28, 2021), Ministry of Finance.

Page | 18

Electronic copy available at: https://ssrn.com/abstract=4552664

 Figure 5: Smartphone and Internet Penetration in India
A. No of smartphone users in India as % of B. Internet subscribers in India as % of
population population
70
70
60.3 58.9
60
60 54.2 53.9
50
50

40
40

30 30
23.1
19.1 20
20

10 10
2.8
0 0
2010 2015 2020 2021 2015 2020 2021

Source: Telecom subscription report as on December 31, 2021, released on February 17, 2022, Telecom
Regulatory Authority of India (TRAI). Population is from World Bank (WDI database).
Note: Internet subscribers include wired and wireless internet subscribers.

Table 1: Commercial bank branches (per 100,000 adults)

2010 2015 2020
Ukraine 2.3 0.6 0.4
Ghana 5.3 7.0 8.3
Nigeria 6.6 5.0 4.8
China 7.3 8.5 8.8
Philippines 7.6 8.8 9.2
Singapore 9.8 9.0 7.0
South Africa 9.8 10.4 9.2
India 10.0 13.5 14.7
Thailand 11.0 12.5 10.6
Norway 11.0 7.7 5.5
Turkey 17.9 19.1 15.4
Brazil 18.7 20.9 17.9
Morocco 20.8 24.6 24.2
Mauritius 21.3 21.7 16.4
Sweden 22.5 19.3 13.8
Russia 35.1 32.9 24.6
Source: World Development Indicators.
Note: Due to non-availability of data for 2020, data for 2019 have been taken for
Ghana, Nigeria, and Mauritius and 2017 for Norway.

Page | 19

Electronic copy available at: https://ssrn.com/abstract=4552664

 Table 2: Banking Statistics for India
March December- December
2010 2019 2020
Banking outlets in villages- Branches 33378 54481 55073
Banking outlets in large villages via
Business Correspondents 8390 128980 851272
Banking outlets in small villages via
Business Correspondents 25784 383864 385537
Total Banking Outlets in villages via
Business Correspondents 34174 512844 1236809
Basic Saving Bank Deposit Accounts -
Total (in Lakh) 735 5967 6492
Basic Saving Bank Deposit Accounts -
Total (Amount in INR crore) 5500 152826 203061
Kisan Credit Cards - No. of cards (in
Lakh) 240 479 490
Kisan Credit Cards - Total (Amount in
INR crore) 124000 709377 679136
General Credit Card - No. of cards (in
Lakh) 10 200 199
General Credit Card - Total (Amount in
INR crore) 3500 184918 173968
Information and Communication
Technology -A/C-BC-No. of Transactions
( in Lakh)# 270 22500 35183
Information and Communication
Technology -A/C-BC-Total Transactions
(Amount in crore)# 700 606589 828795
Source: “Ch. 4: Credit Delivery and Financial Inclusion,” RBI Annual Report (May 27, 2021).
Notes: # denotes transaction during year. Large villages refers to villages where population is greater
than 2000 and small villages refers to villages where population is less than 2000. BC refers to
Business Correspondents, who are retail agents engaged by banks for providing banking services at
locations other than a bank branch/ATM.

Page | 20

Electronic copy available at: https://ssrn.com/abstract=4552664

 Table 3. Progress of Pradhan Mantri Jan Dhan Yojana (PMJDY)
March March March March March March March
2015 2016 2017 2018 2019 2020 2021
No. of PMJDY accounts
(in Crore) 14.7 21.4 28.2 31.4 35.3 38.3 42.2
Deposit in PMJDY
accounts (in INR
Crore) 15670 35672 62972 78494 96107 118434 145551
Average Deposit per
PMJDY account (in
INR) 1065 1665 2235 2497 2725 3090 3449
Number of RuPay debit
cards issued to PMJDY
account-holders (in
Crore) 13.1 17.8 22.0 23.7 27.9 29.3 30.9
Operative PMJDY
Accounts 23.2 26.3 30.2 34.9 36.9
Source: PMJDY Progress Report, Department of Financial Services, Ministry of Finance.

Table 4. Individuals using the Internet (% of Population)

2010 2015 2020
India 7.5 14.9 57.6
Ghana 7.8 23.0 53.0
Nigeria 11.5 24.5 33.6
Thailand 22.4 39.3 77.8
Ukraine 23.3 48.9 70.0
South Africa 24.0 51.9 68.0
Philippines 25.0 na 43.0
Mauritius 28.3 50.1 64.9
China 34.3 50.3 70.6
Turkey 39.8 53.7 77.7
Brazil 40.7 58.3 73.9
Russia 43.0 70.1 85.0
Morocco 52.0 57.1 84.1
Singapore 71.0 79.0 75.9
Sweden 90.0 90.6 94.5
Norway 93.4 96.8 97.0
Source: World Development Indicators.
Note: Due to non-availability of data for 2020, estimates of 2019 have been
taken for Ghana, Ukraine, South Africa, and Philippines.

Page | 21

Electronic copy available at: https://ssrn.com/abstract=4552664

 Table 5: Countries with Active CBDC Projects: Comparison by Indicators

GDP per capita Central Bank

BRICS Member WIPO Rank:
Country Name PPP(most recent Independence (Binary) Technology
World Bank (Garriga 2016) Competitiven
estimate) ess
India 6,503.9 0.264 Yes 48
Philippines 8,389.8 0.579 No 50
Morocco 7,369.5 0.328 No 75
Ghana 5,744.4 0.403 No 108
Nigeria 5,186.4 0.443 No 117
Sweden 55,037.7 0.257 No 2
Taiwan [not listed] 0.273 No [not listed]
Norway 62,644.8 0.242 No 20
Singapore 98,520.0 0.211 No 8
Brazil 14,835.4 0.385 Yes 62
Russia 29,812.2 [not listed] Yes 47
China 17,210.8 0.384 Yes 14
South Africa 13,360.6 0.321 Yes 60
Turkey 27,235.43 0.633 No 51
Ukraine 13,054.76 0.623 No 45
Mauritius 20,530.51 0.201 No 52
Thailand 18,232.80 0.126 No 44

Note: Cells highlighted in green in this table indicate that the country in a row was selected for comparison against India due to its
similarity along the indicator in that column, among countriesactively and publicly pursuing central bank digital currencies in my
dataset. These countries remain color-coded in reference to these groups in each of the tables below.

Page | 22

Electronic copy available at: https://ssrn.com/abstract=4552664

 Table 6: Publicly Stated Policy and Economic Motivations for CBDC Projects among Case Countries

Country Financial Declining Banking International Sanctions Precautionary Fiscal Financial

Name Inclusion Cash Use Efficiency Payments Transparency Stability
India Yes Yes Yes Yes - - Yes -
Philippines Yes - Yes - - - - -
Morocco - - - - - - - -
Ghana - - - - - - - -
Nigeria - - - Yes - - - -
Sweden Yes Yes Yes - - - Yes -
Taiwan - - Yes - - - - -
Norway - Yes - - - Yes - -
Singapore - - Yes Yes - Yes - -
Brazil Yes Yes Yes Yes - - - -
Russia Yes - Yes Yes Yes - - -
China - - Yes - - - Yes -
South Yes - Yes Yes - - - -
Africa
Turkey Yes - Yes - - - - Yes
Ukraine Yes Yes - - - - - -
Mauritius - - - - - - - -
Thailand Yes - Yes - - - - Yes

Note: These values are coded from public statements made by central bank and other relevant government officials regarding the
motivations for their respective CBDC projects. The codes were determined from review of data through mid-2021, first through an
inductive coding exercised and formalized through cross-assessment on all observations in the data to ensure full coverage. No countries
in the data from which this report is compiled detailed motivations that were not captured by any of these eight themes.

Page | 23

Electronic copy available at: https://ssrn.com/abstract=4552664

 Table 7: Timing of Publicly Signaled Project Development among Case Countries
Initially Announced Current Known State Target Date for Next
Country Name State of Development of Development Developments
Interest Intended Pilot Pilot Finished
India
(July, 2019) (December, 2021) (2022)
Initial Research Design Research No Public
Philippines
(July, 2020) (May 2021) Target Dates
Initial Discussions Initial Research No Public
Morocco
(November, 2017) (February 2021) Target Dates
Feasibility Research Design Research No Public
Ghana
(November, 2018) (October, 2021) Target Dates
Announce Pilot Issue CBDC Pilot No Public
Nigeria
(June, 2021) (October, 2021) Target Dates
Initial Discussions Announce Pilot Issue CBDC Pilot
Sweden
(November, 2016) (May, 2021) (2026)
Announce Interest Design Research No Public
Taiwan
(March, 2018) (June, 2020) Target Dates
Feasibility Research Application Research No Public
Norway
(May, 2018) (April, 2021) Target Dates
Initial Research Design Research No Public
Singapore
(November, 2016) (November, 2021) Target Dates
Initial Research Announce Pilot Issue CBDC Pilot
Brazil
(December, 2018) (November, 2021) (2022/2023)
Initial Discussions Announce Pilot Issue, Expand Pilot
Russia
(October, 2017) (June 2021) (2022)
Initial Research Expanded Pilot Expand Pilot Further
China
(January, 2014) (December, 2021) (2022)
Feasibility Research Announce Pilot Issue CBDC Pilot
South Africa
(June, 2016) (September, 2021) (2022)
Research Feasibility Announce Pilot No Public
Turkey (March, 2018) (August, 2021) Target Dates
Research Feasibility Design Research Issue CBDC
Ukraine (March, 2016) (August, 2021) (2025)
Initial Discussions Announce Pilot No Public
Mauritius (March, 2019) (May, 2021) Target Dates
Research Feasibility Announce Pilot No Public
Thailand (August, 2018) (October, 2021) Target Dates
Note: Initial and current states of development are coded at the general level of: (i) interest, (ii) research, (iii)
development, (iv) pilot, (v) issuance, and (vi) terminating CBDC projects. The statesof development listed in the table
above are sub-components of each major progress code, whichtypically involve specificity regarding the type of
research and development, or stage of pilot.

Page | 24

Electronic copy available at: https://ssrn.com/abstract=4552664

 Table 8: Design Preferences for CBDC Technology Publicly Announced by Case
Countries

Country Name Architecture Infrastructure Access Interlinkages

India Hybrid - - -
Philippines - - - International
Morocco - - - -
Ghana - - - -
Nigeria - Decentralized - -
Sweden Hybrid Centralized - None
Taiwan - - - -
Norway Hybrid Hybrid - International
Singapore Direct Hybrid Hybrid -
Brazil Hybrid Decentralized Token -
Russia - - - International
China Indirect Centralized Hybrid -
South Africa - - Token None
Turkey Indirect Decentralized Hybrid -
Ukraine Hybrid Decentralized - International
Mauritius - - - -
Thailand Hybrid Decentralized Hybrid International

Note: These design features are the most recent publicly announced preferences by central
bank and relevant government officials in each of these countries as of December, 2021. The
design features are coded following the technical typology developed by the Bank for
International Settlements.

Page | 25

Electronic copy available at: https://ssrn.com/abstract=4552664

 Appendix: Timeline of the discussions and deliberations
on the CBDCs (and Crypto assets)

- December 9, 2016: Watal Committee Report on Digital Payments provided the earliest
reference on adoption of CBDCs.
The report included the following para on digital currency: “Digital currencies are currency
issued in a digital form. This could include cryptocurrencies such as Bitcoins (which are an
independent form of money separate from any country’s central bank issued legal tender)
or digitally issued central bank currencies. In the course of consultations, the Committee
was presented with a case for digitally issued Indian currency, as a means to substitute
physical currency. Central bank issued digital currency seeks to retain the characteristics of
central bank issued M0 currency, but merely changes the form factor from paper to digital.
Such a digital currency would have to be issued by the RBI, and used by way of hardware
modules. The security of the currency is ensured by cryptographic technology, inspired by
existent security features on physical currency. The Committee notes that several benefits
of digital currency, including the instantaneous settlement of transactions, reduction of
costs of cash, ability to provide a more comprehensive and unified source of credit history
and reduction in instances of tax avoidance. The most significant benefit however, is that
the technology makes it extremely difficult to counterfeit, and more importantly enables
the central bank to detect the existence of counterfeit currency on a real-time basis.”

- November 2, 2017: A high level Inter-Ministerial Committee was constituted by the

Ministry of Finance, Government of India (GoI) to examine the issues related to virtual
currencies and propose specific action to be taken in this matter.

February, 2018: Union Finance Minister in his Budget speech announced that the
“Distributed ledger system or the Block chain technology allows organization of any chain
of records or transaction without the need of intermediaries. The Government does not
consider cryptocurrencies legal tender or coin and will take all measures to eliminate the
use of these crypto assets in financing illegitimate activities or as part of the payment
system. The Government will explore use of blockchain technology proactively for ushering
in digital economy.”
-
- February 28, 2019: Inter-ministerial Committee report on Virtual Currencies was
submitted. The Committee recommended a ban on private virtual currencies and
recommended the study of India relevant CBDC models.
The Report highlighted the positive aspect of distributed-ledger technology (DLT) and
suggested various applications, especially in financial services, for use of DLT in India. As
for private cryptocurrencies, given the risks associated with them and volatility in their
prices, the Group recommended banning of the cryptocurrencies in India and imposing

Page | 26

Electronic copy available at: https://ssrn.com/abstract=4552664

 fines and penalties for carrying on of any activities connected with cryptocurrencies in
India.
The Group proposed that the Government keeps an open mind on official digital currency.
As virtual currencies and its underlying technology were still evolving, the Group has
proposed that the Government may establish a Standing Committee to revisit the issues
addressed in the Report as and when required.
-
- January 1, 2021: An RBI report, Payment and Settlement Systems in India: Journey
in the second decade of the Millennium 2010-20, mentioned that the RBI was examining
the requirements and modalities for operationalizing a digital rupee.
-
- February 6, 2021: It was reported in the media that an RBI internal panel was taking a
close look at the CBDCs. https://bfsi.economictimes.indiatimes.com/news/policy/rbi-
internal-panel-working-on-model-of-central-banks-digital-currency-decision-very-
soon/80718180
-
- February 26, 2021: The RBI’s report, Currency and Finance 2020-21, briefly
discussed the potential benefits and challenges of issuing CBDCs for advanced and
emerging market economies including India.
-
- July 22, 2021: Speech by RBI Deputy Governor T Rabi Shankar at a webinar organized
by Vidhi Centre for Legal Policy, New Delhi), CBDC- Is this the future of money. He
described what a digital currency is, its benefits, and the rationale for India to have its own
digital currency.
“Generally, countries have implemented specific purpose CBDCs in the wholesale and
retail segments. Going forward, after studying the impact of these models, launch of
general purpose CBDCs shall be evaluated. RBI is currently working towards a phased
implementation strategy and examining use cases which could be implemented with little
or no disruption. Some key issues under examination are – (i) the scope of CBDCs –
whether they should be used in retail payments or also in wholesale payments; (ii) the
underlying technology – whether it should be a distributed ledger or a centralized ledger,
for instance, and whether the choice of technology should vary according to use cases; (iii)
the validation mechanism – whether token based or account based, (iv) distribution
architecture – whether direct issuance by the RBI or through banks; (v) degree of
anonymity etc. However, conducting pilots in wholesale and retail segments may be a
possibility in near future.”

Page | 27

Electronic copy available at: https://ssrn.com/abstract=4552664

- December 28, 2021: Report on Trends and Progress of banking in India 2020-21.
Briefly discuss role of CBDC and cross border transactions.
“Given its dynamic impact on macroeconomic policy making, it is necessary to adopt basic
models initially, and test comprehensively so that they have minimal impact on monetary
policy and the banking system. India’s progress in payment systems will provide a useful
backbone to make a state-of-the-art CBDC available to its citizens and financial
institutions.”

- December 13, 2021: Lok Sabha 23 Nov 2021 bulletin: The Cryptocurrency and
Regulation of Official Digital Currency Bill, 2021: To create a facilitative framework for
creation of the official digital currency to be issued by the Reserve Bank of India. The Bill
also seeks to prohibit all private cryptocurrencies in India; however, it allows certain
exceptions to promote the underlying technology of cryptocurrency and its uses. This bill
has not been tabled yet in the parliament.

- February 1, 2022: In Union Budget for 2022-23, the Finance Minister announced a flat
30 % tax on income from Virtual Digital assets or crypto.

- February 1, 2022: The Finance Minister announced in the Union Budget for 2022-23
that India will issue a “digital rupee” during the fiscal year 2022-23 (April 1, 2022-March
30, 2023).

- March 26, 2022: Finance bill, 2022 passed by parliament. This bill, inter alia, proposes
to insert a clause (aiv) in Section 2 of the Reserve Bank of India Act, 1934, which increased
the ambit of the term “bank note” to include notes in digital form.

- April 7, 2022: ICRIER Webinar on: Getting Central Bank Digital Currency (CBDC) Right
for India: Lessons from G20 and the Rest of the World. (Deputy Governor T Rabi
Shankar’s opening remarks). The launch of a CBDC for India is inevitable. Not a question
of whether, but how to do it well. The RBI is working on it full time since the Finance
Minister announced it in the budget. The case for a CBDC was considered to be weaker
earlier due to the ubiquity of digital payments. The sentiment has changed with the advent
of the stable coins. Since the stablecoins are not volatile, they are deemed to be a more
credible alternative/challenge to the fiat currency. Digital Yuan has been another
imperative toward a CBDC in India.
There will be a one to one convertibility between the digital and physical currency. In the
RBI’s balance sheet, it will be treated in a similar fashion and will be recorded along with
the paper currency, not as a separate instrument (as apparently is being considered by the
US). It will not earn interest. Since most of the central banks are grappling with these
questions; and there is very little to draw from other countries’ experiences, India is

Page | 28

Electronic copy available at: https://ssrn.com/abstract=4552664

 unlikely to rush through it. The RBI will introduce and implement it in a
gradual/calibrated manner with the course correction as needed; and will do no harm!
- April 7, 2022: ICRIER Webinar on: Getting Central Bank Digital Currency (CBDC) Right
for India: Lessons from G20 and the Rest of the World. The Chief Economic Advisor to the
Government of India said, “With the advent of CBDC, virtual private currencies won’t be
eliminated or lose their appeal. They have to be tackled separately with other regulatory
instruments. He cautioned that the success of CBDCs will be dependent on the inclusion of
the lower socio-economic groups in the country; and that likely a phased roll out would be
required (first at the wholesale level and then at the retail level; and in further phases even
in retail level). He cautioned on the high storage and processing requirements, as
the ledger grows substantially over time and the need to ensure these capabilities.

- April 8, 2022: In the Post Monetary Policy Meeting Press conference, the RBI Deputy
Governor clarified that India will first introduce a wholesale currency.

Page | 29

Electronic copy available at: https://ssrn.com/abstract=4552664

 References
Allen, Sarah et al. (2020), “Design Choices for Central Bank Digital Currency: Policy and
Technical Considerations,” Global Economy & Development Working Paper no.140,
Washington, D.C.: Brookings Institution.

Auer, Raphael, and Rainer Böhme (2020). "The Technology of Retail Central Bank Digital
Currency." BIS Quarterly Review, March.

Bank for International Settlements (2021), “CBDCs: An Opportunity for the Monetary
System,” Annual Monetary Report, Chapter 3, Basel: BIS.

Bank of Ghana (2021), “Design Paper of the Digital Cedi (eCedi),” Accra: Bank of Ghana.
Christodorescu, Mihai, Wanyun Gu, Ranjit Kumaresan, Mohsen Minaei, Mustafa Ozdayi,
Benjamin Price, Srinivasan Raghuraman, Muhammad Saad, Cuy Sheffield, Minghau Xu
and Mahdi Zamani (2020), “Towards a Two-Tier Hierarchical Infrastructure: An Offline
Payment System for Central Bank Digital Currencies,” ArXis 2012.087003 (December).

Garriga, Ana Carolina (2016). "Central Bank Independence in the World: A New Data
Set," International Interactions 42: 849-868.

Reserve Bank of India. (2021a). Report on Trend and Progress of Banking in India, 2020-
21. New Delhi: Reserve Bank of India.

Reserve Bank of India (2021b), Financial Inclusion Plan: A Progress Report, New Delhi:
Reserve Bank of India.

Reserve Bank of India (2022), “Reserve Bank of India Launches UPI for Feature Phones
(UPI123pay) and 24x7 Helpline for Digital Payments (DigiSaathi),” Press Release (8
March).

Sankar, S. T. R. (2021), “Central Bank Digital Currency – Is This the Future of Money?”
(Speeches and Interviews) [Speech]. Reserve Bank of India.
https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1111

Singh, A. (2021, December 28), “India’s Central Bank Recommends Basic Version of
CBDC,” https://www.coindesk.com/policy/2021/12/28/rbi-recommends-india-
implement-basic-version-of-cbdc/

Sitharaman, Nirmala (2022), “Budget 2022-2023: Speech of Nirmala Sitharaman,

Minister of Finance,” New Delhi: Government of India.

Soderberg, Gabriel, Marianne Bechara, Wouter Bossu, Natasha Che, John Kiff, Inutu
Lukonga, Tommaso Griffoli, Tao Sun and Akihiro Toshinaga (2022), “Behind the Scenes of
Central Bank Digital Currency: Emerging Trends, Insights and Policy Lessons,” FinTech
Note 004 (February).

Page | 30

Electronic copy available at: https://ssrn.com/abstract=4552664

NATIONAL COUNCIL OF APPLIED ECONOMIC RESEARCH
NCAER India Centre 11 Indraprastha Estate, New Delhi 110 002, India.
Tel: +91-11-2345-2698, [email protected] www.ncaer.org

NCAER | Quality . Relevance . Impact

Page | 31

Electronic copy available at: https://ssrn.com/abstract=4552664