RBI to soon commence pilot launch of Central Bank Digital Currency
The Reserve Bank of India is exploring the possibility to launch its own digital currency or digital rupee (eRe) with minimal disruption to the financial system.
In a concept paper released last week, the RBI says that the Central Bank Digital Currency (CBDC), being a sovereign currency, holds unique advantages of central bank money viz. trust, safety, liquidity, settlement finality and integrity. The key motivations for exploring the issuance of CBDC in India among others include reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in payments system, adding efficiency to the settlement system, boosting innovation in cross-border payments space and providing public with uses that any private virtual currencies can provide, without the associated risks. The use of offline features in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not available.
The concept paper discusses the following key issues:
Type of CBDC to be issued – Wholesale CBDC and/or Retail CBDC
Model for issuance and management of CBDC – Direct, Indirect or Hybrid Model
Forms of CBDC – Token based or Account based
Technology choice – Conventional centrally controlled ledger or Distributed Ledgers
Instrument design – Remuretated or Non-remunerated
Degree of anonymity
RBI has been exploring the pros and cons of introduction of the CBDCs for some time. As there are multiple compelling motivations for the introduction of CBDCs, RBI is currently engaged in working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch, and simultaneously examining use cases that could be implemented with minimal or no disruption.
CBDC, the central bank digital currency, holds a lot of promises by way of ensuring transparency, and low cost of operation among other benefits and the potential to expand the existing payment systems to address the needs of a wider category of users. While the intent of CBDC and the expected benefits are well understood, it is important to identify innovative methods and compelling use cases that will make CBDC as attractive as cash, if not more.
Internal ombudsman mechanism introduced in Credit information companies
The RBI has introduced an Internal Ombudsman (IO) mechanism to strengthen the internal grievance redress mechanism within the Credit Information Companies (CICs) by enabling a review of customer complaints before their rejection, by an independent apex level authority within the CIC. All CICs to appoint an internal ombudsman at the top of their internal grievance redress mechanism by April 1 of next year.
The directions include the appointment/tenure, role and responsibilities, procedural guidelines, and oversight mechanism for the IO, the RBI said in a statement. All complaints that are partly or wholly rejected by CICs will be reviewed by the IO before the final decision of the CIC is conveyed to the complainant, it said, adding that the IO will not entertain any complaints directly from the members of the public.
Currently, consumers raise disputes through CICs’ websites, which is then routed to the credit institution from where the consumer has taken loan. CICs cannot make any changes to the data unless authorised by the credit institution concerned.
RBI to use AI , ML technology for enhancing supervision
The Reserve Bank is planning to extensively use advanced analytics, artificial intelligence and machine learning to analyse its huge database and improve regulatory supervision on banks and NBFCs. For this purpose, the central bank is also looking to hire external experts.
While the RBI is already using AI and ML in supervisory processes, it now intends to upscale it to ensure that the benefits of advanced analytics can accrue to the Department of Supervision in the central bank. The department has been developing and using linear and a few machine-learnt models for supervisory examinations.
The supervisory jurisdiction of the RBI extends over banks, urban cooperative banks (UCB), NBFCs, payment banks, small finance banks, local area banks, credit information companies and select all India financial institutions.It undertakes continuous supervision of such entities with the help of on-site inspections and off-site monitoring.
Across the world, regulatory and supervisory authorities are using machine learning techniques (commonly referred to as ‘Supertech’ and ‘regtech’) for assisting supervisory and regulatory activities, it added.Most of these techniques are still exploratory, however, they are rapidly gaining popularity and scale.
