How close is the world to the widespread rollout of CBDCs & what is RBI's pilot project

Summary

The video script discusses the growing interest in Central Bank Digital Currencies (CBDCs), as indicated by the Bank for International Settlements' survey showing 94% of central banks exploring CBDCs. It highlights the pilot projects in countries like India and the debate over whether CBDCs should be interest-bearing. The conversation also touches on the regulatory landscape for cryptocurrencies, the potential impact of countries like Russia and the US considering legalizing cryptos for international trade, and the need for global harmonization in cryptocurrency regulations.

Takeaways

• 📈 The Bank for International Settlements (BIS) conducts an annual survey to gauge the global interest in Central Bank Digital Currencies (CBDCs), indicating a growing trend with 94% of central banks exploring CBDCs.
• 🌐 There is a significant interest in the wholesale version of CBDCs for cross-border payments and financial institutions' settlements, with retail CBDCs facing more challenges in adoption.
• 🏦 India's central bank, the RBI, has initiated pilot projects for both wholesale and retail CBDCs, with a focus on financial inclusion and offline payments.
• 💡 The preference for UPI over retail CBDCs in India highlights the need for interoperability and consumer trust in new financial technologies.
• 💰 The debate over whether CBDCs should be interest-bearing is ongoing, with arguments for immediate monetary policy transmission and against potential negative impacts on banks.
• 🌍 Major countries, including G20 members, are exploring CBDCs, with some like the Bahamas already implementing retail CBDCs for financial inclusion.
• 📉 Concerns about the volatility and stability risks of private cryptocurrencies like Bitcoin have led central banks to consider CBDCs as a more regulated alternative.
• 🔐 There is a global movement towards regulating cryptocurrencies, with frameworks being developed to address consumer protection and anti-money laundering.
• 📝 The IMF and the Financial Stability Board have provided a roadmap for regulating cryptocurrencies, emphasizing the need for licensing and disclosure requirements.
• 🇷🇺 Russia has introduced a legal framework to use cryptocurrencies for international trade to circumvent Western sanctions, but not for domestic use.
• 🔑 The distinction between how cryptocurrencies are classified—whether as commodities or securities—varies by country, indicating a need for harmonization in global regulations.

Q & A

What is the main topic of discussion in this episode of 'Macros Sudra'?

The main topic of discussion in this episode is Central Bank Digital Currencies (CBDCs) and cryptocurrencies, exploring the growing interest in CBDCs globally and the various considerations and challenges associated with their implementation.

What is the source of information used to gauge the global interest in CBDCs?

The Bank for International Settlements (BIS) survey of global central banks is used to gauge the global interest in CBDCs. This annual survey assesses the progress of central banks in developing a digital version of their sovereign currency.

How many central banks participated in the BIS survey conducted in 2023, and what did they find regarding CBDC interest?

86 central banks participated in the BIS survey in 2023, and they found that 94% of them are exploring the use of CBDCs, indicating a significant level of interest.

What are the different phases of CBDC development mentioned in the script?

The different phases of CBDC development mentioned are the search phase, where central banks are trying to understand the potential purposes of digital currency; the experimental phase; and the pilot phase, which is a more advanced stage of testing before full implementation.

Which countries are leading the way in CBDC implementation, and what are their objectives?

Countries like India and the Bahamas are leading in CBDC implementation. India initiated pilots for both wholesale and retail CBDCs in 2022, with various objectives such as financial inclusion, offline payments, and government scheme disbursements. The Bahamas has rolled out retail CBDC to promote financial inclusion in remote areas.

What is the difference between retail and wholesale CBDCs?

Retail CBDCs are designed for use by individuals and the public for person-to-person or person-to-merchant transactions, similar to cash or UPI. Wholesale CBDCs, on the other hand, are used among financial institutions for settlement purposes or interactions between banks and the central bank.

Why is there a growing interest in the wholesale version of CBDCs according to the BIS survey?

The growing interest in the wholesale version of CBDCs is due to its potential use for cross-border payments, which can be time-consuming, costly, and fraught with frictions. CBDCs can help streamline these processes.

What is one of the major concerns regarding the implementation of retail CBDCs?

One of the major concerns is the preference of the public for existing payment methods like UPI over CBDCs, as well as a lack of information and trust in CBDCs, leading to slower adoption rates than expected.

What is the debate around whether CBDCs should be interest-bearing or not?

The debate revolves around the impact of interest-bearing CBDCs on monetary policy transmission and their competition with bank deposits. Interest-bearing CBDCs could promote immediate transmission of policy rates but might also compress bank margins and disrupt the financial system.

How do central banks view private cryptocurrencies in relation to CBDCs?

Central banks see private cryptocurrencies as a potential risk to financial stability due to their volatility. They are interested in CBDCs as a way to preserve the sovereignty of their currencies and to provide a regulated alternative to private cryptocurrencies.

What is the current regulatory landscape for cryptocurrencies globally?

The regulatory landscape for cryptocurrencies is evolving, with many countries developing frameworks to regulate cryptocurrencies and stable coins. This includes licensing exchanges, ensuring consumer protection, and establishing proper disclosure requirements.