CBDC transactions remain anonymous “to a certain extent”: RBI

Transactions via central bank digital currencies (CBDC) would remain anonymous “to a certain extent,” a senior Reserve Bank of India (RBI) official said on Wednesday, adding that technology and legal provisions could be examined to ensure that anonymity . India launched the pilot for its digital currency, or e-rupee, on November 1 when it opened for initial testing.

At the time only used by banks for inter-bank settlements, the scope of the project was expanded to include consumer and retailer-led transactions from December 1st.

That RBI has started experimenting with both wholesale and retail versions of the e-rupee Blockchain Distributed ledger technology as an alternative to cash.

“It is possible to get legislation to ensure anonymity,” Deputy Governor of the Reserve Bank of India T. Rabi Sankar said in a post-policy news conference on Wednesday.

“Exactly what will happen depends on how things play out, but anonymity is a fundamental feature of the currency and we need to make sure that (with CBDCs)” added Sankar.

The RBI hasn’t clarified to what extent CBDC transactions will be anonymous, but the Income Tax Department allows cash transactions up to a certain limit without providing state proof of identity, and the same rules may apply, RBI Gov. Shakkanta Das said at a post -Policy press conference.

It is currently mandatory for all deposits over Rs. 50,000.

Bankers have expressed concerns about the project, saying that in its current form they see no benefits from CBDCs, which are similar to internet-based banking.

Many of them also say that the Unified Payment Interface (UPI) Instant, real-time consumer payment system that allows users to transfer funds between banks without revealing account details could be a tough contender for retail use of e-rupees.

However, the central bank has claimed that there are differences and benefits to both to ensure the adoption of the e-rupee.

“E-rupee is money, UPI is a payment method,” RBI’s Sankar said.

“Digital currency is like paying cash, it is possible for two private companies to provide wallet functionality and move money between them. That’s not possible with UPI, which has to be bank-to-bank,” he said, adding that unlike UPI, this e-rupee offers privacy.

© Thomson Reuters 2022