India is one of several countries that are actively working to integrate central bank digital currencies (CBDCs) into their financial systems. Over the weekend, the International Monetary Fund (IMF) proposed a framework aimed at facilitating the widespread adoption of CBDCs, known as REDI, which stands for Regulation, Education, Design and Implementation and Incentives. In its latest report, the IMF indicated that many jurisdictions are likely to look to CBDCs as key policy tools to improve financial inclusion in the near future.
The IMF noted that a new payment instrument such as CBDC could face multiple challenges in terms of adoption, especially when its performance is currently being tested by only a few countries.
Understanding REDI
The IMF report states that the CBDC ecosystem needs to be regulated to ensure financial security. The IMF mentioned a participation margin for intermediaries to ensure oversight by financial regulators of countries experimenting with CBDCs. The report also suggests that CBDCs must be given legal tender status alongside fiat currencies.
Echoing the insights of global financial experts, the report emphasizes that raising awareness and understanding of CBDCs is key to promoting their adoption. It emphasizes the importance of communicating the benefits of CBDC, collaborating with industry partners to improve outreach, and leveraging media channels to educate the public. These efforts have been identified as key catalysts for driving the widespread adoption of CBDCs.
Regarding the design and implementation of CBDCs, the IMF recommends that governments develop comprehensive strategies for the involvement of beneficiaries and lenders, including incentives to encourage participation. These incentives can be in monetary and non-monetary form, aimed at increasing engagement with CBDCs.
“Integrating non-bank entities could significantly expand the reach and availability of CBDCs; however, they can also introduce complexities into the regulatory framework. Effectively managing these challenges requires comprehensive regulatory adjustments to align non-banking standards with the stringent security and operational requirements of existing financial institutions and CBDC frameworks, ensuring stability and security,” the report added.
The current global environment of CBDCs
A recent report by the American think tank Atlantic Council shows that 134 countries, which make up 98 percent of the global economy, are actively exploring digital versions of their currencies. The report highlights that all G20 countries are now exploring CBDCs, with a total of 44 countries currently piloting these initiatives.
China, Russia, Nigeria and India are among the countries actively conducting advanced central bank digital currency (CBDC) trials in retail and wholesale settings.
About India’s eRupee CBDC
The eRupee CBDC retail pilot was launched in December 2022 with the aim of facilitating peer-to-peer transactions. Recently, RBI Governor Shaktikanta Das announced that eRupee has already attracted five million users during its retail pilot phase.
Prior to the IMF report, India’s central bank had begun incentivizing CBDC users for their participation in trials. In January 2024, several banks, including HDFC, Kotak Mahindra Bank, Axis Bank, Canara Bank and IDFC First Bank, started disbursing funds linked to employee benefit schemes directly to employees’ CBDC wallets instead of their salary accounts. This initiative is designed to encourage the adoption and use of eRupee.
According to Das, eRupee is being positioned as a vehicle to internationalize India’s fixed currency. RBI is actively working to make eRupee compatible with UPI QR codes, able to process offline transactions and provide financial privacy to users.
