Editorial: Need for digital boost

India is yet to put in place the Data Protection Authority that would oversee the range of privacy compliance by institutions

Nearly a year after the introduction of the digital rupee— Central Bank Digital Currency (CBDC)—, the expected market penetration has not happened in India. At the time of the launch, the Reserve Bank of India had set an ambitious target of achieving one million daily Retail CBDC transactions by the end of 2023 but they are currently averaging around 18,000 per day. It is clear from the experience so far that incentivising digital currency payments may be crucial to drive widespread adoption. Incentives could be in the form of rewards, discounts, or other benefits so that more and more users can embrace the e-rupee. More importantly, the absence of a regulatory architecture is a big hurdle in the path of rapid adoption of the digital currency. India is yet to put in place the Data Protection Authority that would oversee the range of privacy compliance by institutions, including grievance redressal in case of violations of personal data. The financial data collected on digital currency transactions will be sensitive in nature, and the government will have to carefully think through the regulatory design. This would require close interaction between banking and data protection regulators, where turf battles between authorities may also become an issue. The institutional mechanisms would need to ensure that there is no overlap between different regulators and chart out a clear course of action in case there is a data breach of digital currencies. World over, the CBDCs are struggling as digital currencies of several major economies have run into hurdles.

The CBDCs are a digital form of a paper currency and unlike cryptocurrencies that operate in a regulatory vacuum, these are legal tender issued and backed by a central bank. However, they face key challenges like the threat to privacy of individuals, the security-enhancing technology that needs to be employed and the regulatory architecture that has to be set up to combat data breach. There are several benefits of using digital currency. Apart from bringing down the operational costs associated with physical cash management, it could also make the inter-bank market more efficient. The digital currency also helps make cross-border payments cheaper, faster and more secure with their instant settlement features. Considering that India is a big recipient of remittances, this could lower the costs, bringing in wider benefits. With more Indians willing to transact digitally, e-rupee will help retailers provide efficient and secure alternative payment methods to customers at their stores. The CBDCs need to be integrated into the payments system of India such as the UPI and digital wallets. The interoperability between these payment systems would be vital for the success of the digital economy. Since the CBDCs will use cryptography, it will render the system safer as compared to the existing payment infrastructure. As technologies get more advanced, we could see smoother CBDC adoption.

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