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The RBI's concept paper on CBDC (Central Bank Digital Currency) sets in motion the process for its introduction. On the face of it, with a lot of digitalisation already in place, the question that arises is whether a CBDC would add any additional value. This has been explained by the RBI. There are different stages of evolution in digitalisation and CBDC is the last frontier. True, we are transacting with cards, RTGS, NEFT, IMPS, UPI, etc. Having a digital note in the pocket is the ultimate level of sophistication.

The concept paper spells out the broad contours of how the CBDC will play out. The essential features of 'money' are that it should serve the requirements of being a medium of exchange, store of value and unit of measurement. Being currency-like means that the CBDC serves these prerequisites. In fact, this is where it scores over cryptocurrencies which have no legal value and cannot qualify as currency as they do not meet these requirements. As CBDC comes from the RBI, there is no risk involved.

CBDC has been defended on grounds of its being more efficient, and innovative, being able to foster financial inclusion and reducing operating costs. For it to work smoothly, however, it needs to be accessible to all, especially the poor who may not have access to any electronic device. This can be a challenge when it comes to sewing the purpose of financial inclusion.

Operating costs may not matter for the RBI. But given that physical currency moves across banks through vaults and ATM machines, CBDC will help in cutting down costs. However, it would make several industries like ATM manufacturers and security forces less relevant. Given that the RBI has stated that CBDC will not replace currency but provide an alternative, the fear may not be fully founded.