CBDC is future of money; no competition with UPI: RBI Governor

Reserve Bank of India (RBI) Governor Shaktikanta Das says the central bank’s pilot project for exploring interoperability of Central Bank Digital Currency or CBDC is underway.

“The future of money is CBDC and it's not in competition with UPI. CBDC and UPI will coexist,” Das said during his address at the 188th Annual General Meeting of the Bombay Chamber of Commerce and Industry.

He says the digital currency is in a trial mode with the central bank currently running a pilot project.

“We have made it interoperable because (with) the same QR code you can make UPI payments you can make CBDC payments,” Das adds. The bank plans to enable users to make money transfers using the digital currency to accounts through the latter’s UPI. The bank has started incorporating new features into the new currency so that one can program even the conditions of their CBDC transfers.

Stating examples for the same, he said, “Let's say if you are giving some fertiliser subsidy in CBDCs, you can program it in a manner that the CBDC can be encashed only in a recognised fertiliser depot.” The central bank expects the digital currency to have a lot of other applications to facilitate smart contracts in the payment system.

Talking about India’s growth story and RBI’s role in this growth, Das says the country recorded an average growth of 8.3% and the Reserve Bank India has projected 7.2% growth for the current fiscal year

“The Indian economy in the last Financial year 23-24 contributed to 18.5% of global growth,” he added.

Das attributed this growth to multiple policy initiatives and reforms undertaken by the Centre and the central bank.

“I think (GST) has been one of independent India's biggest structural reforms since 1947,” he shared in his remarks on the effective implementation of the Goods and Services Tax.

Monthly collections of the GST presently remain in the range of ₹1.5 lakh crores to ₹1.7 lakh crores, Das shared.

The governor says the Insolvency and Bankruptcy Code, the flexible inflation targeting that was put in place by way of a 2016 amendment to the RBI Act, and a stable UPI payments system have helped maintain the stable growth of the country.

With a strong month-on-month growth in the final quarter of the last financial year, RBI’s nowcasting team believes the growth momentum will continue to get relayed to the current quarter and could even be higher than the projections given earlier in MPC.

Das shares that FMCG sales in the rural sector have picked up and the forecast of a good monsoon will only push the external demand upwards. "Services exports remain very strong with the private sector capex including cement, steel now picking up."

He, however, laid a key emphasis on price stability and on maintaining inflation at the target rate of 4% in the coming months to sustain the economy's competitiveness and to make it a favourable destination for both domestic and foreign investment.

Despite a moderated inflation in May, any severe weather-related or geopolitical shock could push inflation back above 5%, he said.

"When dealing with the challenge of inflation, a single wrong move can distract you, throw you off track, and coming back on track would be far more costly and will take much more time," Das says.