On Wednesday, one of the top officials of the Indian central bank said that they would offer anonymity with transactions that would be conducted via central bank digital currencies (CBDCs) to a certain extent.
The official said that in order to offer this anonymity to the users, they would explore legal provisions as well as technology.
On November 1st, India rolled out its first trial for its digital currency which has been dubbed the e-Rupee.
The pilot project had only involved the use of the CBDC by banks in order to make settlements with one another.
However, the Reserve Bank of India (RBI) then decided to expand the scope of the project. Therefore, from December 1st, retailers and consumers were also added to the pilot project.
The e-Rupee has been developed with the use of blockchain distributed-ledger technology and the RBI is running experiments on the retail as well as wholesale versions.
The aim is to provide people with an alternative to cash. In a media briefing post policy on Wednesday, T Rabi Sankar, the deputy governor of the RBI, talked about the CBDC.
He said that they could provide anonymity through a legal provision. He said that they would see how things evolve, but added that anonymity was an essential element of currency and they would have to ensure the same with CBDCs.
Nevertheless, it should be noted that the Reserve Bank of India (RBI) has not provided any clarity on the exact degree of anonymity that would be associated with CBDC transactions.
But, Shaktikanta Das, the governor of the Indian central bank, also spoke at the press conference and said that cash transactions can be made to a certain limit and the income tax department does not require any identity proof for them.
It is possible that the same rules might be applicable to CBDCs as well. Currently, any deposits that are higher than 50,000 rupees require taxpayers to provide proof of having a Permanent Account Number.
This refers to a unique alphanumeric number that comprises of 10 digits and is issued by the Income Tax Department.
While India is making progress in the development of its CBDC, not everyone is happy with it and bankers have already expressed their concerns in this regard.
The current form of the project is the reason for these concerns because they do not see any specific benefits of CBDCs and it appears to be the same as transactions based on the internet.
In fact, many of them said that the e-rupee’s retail use might be limited due to competition from the Unified Payments Interface (UPI).
This is a consumer payment system that works in real time and users can make transfers between banks without sharing any account details.
However, the central bank has stated that there are differences between the two and each has its own benefits, so the e-rupee will have no adoption issues.
Sankar stated that while UPI is a payment method, e-Rupee is meant to be a currency. He said that it would work in the same way as cash.
He said that wallet features could be provided by two private entities and the CBDC can be used for moving money between them, which the UPI cannot accomplish at all because it is between banks.