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India to Test CBDC in 2022; Will assist Peru

The Reserve Bank of India (RBI) has stated that a Central Bank Digital (CBDC) currency can make currency issuance more efficient, reduce settlement risk in the financial system, speed up international trade by removing ‘Herstatt’ risk. etc.

RBI may pilot its CBDC in the first quarter of the next fiscal year, according to a report by The Hindu BusinessLine.

“We are on the job and looking into the various issues and nuances related to CBDC. It’s not a simple thing to just say that CBDC can be a habit from tomorrow on,” said P Vasudevan, chief general manager at the RBI’s Department of Payment and Settlement, at a banking event on Wednesday.

India is also going to partner with Peru to explore CBDCs as per a Cointelegraph (CT) article.

The CT report cited the comments of the President of the Central Reserve Bank of Peru, Julio Velarde, at the Annual Conference of Executives (CADE).

“Velarde stated that Peru will partner with the central banks of countries more advanced in their development of CBDCs including India, Singapore, and Hong Kong.”

As stated in the 2021 BIS Survey of Central Banks, cited in an RBI report, 86% of the countries were actively researching CBDC, 60% were experimenting with the technology and 14% were deploying pilot projects.

RBI has justified CBDCs on the grounds of making currency issuance more efficient, reducing settlement risk in the financial system, speeding up international trade by removing ‘Herstatt’ risk. etc.

India already has a robust payment system called Unified Payments Interface (UPI) which has brought digital finance into the hands of people. Moreover, it gave rise to the emerging fintech industry in India. Decentralized Finance (DeFi) and CBDCs may expand the fintech industry further.

What do you think are the benefits of CBDCs? Comment below.

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