CBDC Transactions to Remain Anonymous ‘To a Certain Degree’: RBI

Transactions via central bank digital currencies (CBDC) would remain anonymous “to a certain degree”, a top official at the Reserve Bank of India (RBI) said on Wednesday, adding that technology and legal provisions can be explored to ensure that anonymity. India started the pilot project for its digital currency, or e-rupee, from November 1, when it was opened for initial trial.

Then only being used by banks for settlements with each other, the scope of the project was expanded to include consumer and retailer-led transactions from December 1.

The RBI has begun experiments on both the wholesale and retail versions of e-rupee using blockchain distributed-ledger technology, as an alternative to cash.

“It is possible to get a legal provision to ensure anonymity,” Deputy Governor of Reserve Bank of India, T Rabi Sankar said in a post policy media briefing on Wednesday.

“What exactly will happen will depend on how things evolve, but anonymity is a basic feature of currency and we will have to ensure that (with CBDCs),” Sankar added.

The RBI has not yet clarified the degree to which CBDC transactions will be anonymous, but the income tax department allows cash transactions up to a certain limit to be carried out without furnishing any government identity proof and the same rules may apply, RBI governor Shaktikanta Das said at a post policy press conference.

At present, it is mandatory to furnish a proof of Permanent Account Number, a unique 10-digit alphanumeric number issued by the Income Tax Department to taxpayers, for any deposits above Rs. 50,000.

Bankers have raised concerns about the project saying that in its current form, they don’t see any benefits of CBDCs which is similar to internet-based banking transactions.

Many of them also say that the Unified Payments Interface (UPI) instant real-time consumer payments system, that lets users transfer money between banks without disclosing account details, could be a tough competitor for retail use of e-rupee.

The central bank has, however, maintained there are differences and advantages to both, ensuring e-rupee’s adoption.

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

“Digital currency is like payment of cash, it is possible that two private entities can provide wallet features and money can move in between them. That is not possible with UPI which has to be from one bank to the other,” he said, adding that e-rupee provides privacy unlike UPI.

© Thomson Reuters 2022

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