However, for Digital Rupee to become widely acceptable and to truly unlock the gains of a digital currency, the immediate focus must be on four aspects i.e., scalability, regulatory and privacy framework, operational standardization, and technological considerations.
For any digital currency to scale and effect a significant change in the payments framework, it has to gain acceptance among all stakeholders, from commercial banks to intermediaries and end users.
It is expected that banks would do their own cost benefit analysis to decide on the feasibility of offering e-rupee services to their customers. At present, the requisite infrastructure to connect to the CBDC system might be too expensive and hence policymakers should consider ways to incentivize banks to adopt Digital Rupee on a large scale and ensure that the underlying technology offers maximum interoperability with legacy systems.
The CBDC wallet design must tick all the boxes – ease of use, convenience, stability, user-friendly interface, multi-lingual, voice-controlled functions, and more – to result in a positive experience.
Legal and regulatory framework
The legal and regulatory framework is perhaps the trickiest part of making Digital Rupee a widely used payment option. A framework that is limiting, divergent and not sufficiently in sync is a challenge.
For India, onboarding KYC norms and compliance are critical elements. The government would need to plan out the minimal requirement in identity proofs such that the Digital Rupee footprint can be maximized. A joint effort from various banks, multi-lateral agencies, and government agencies would help chalk out the specific requirements.
Macroeconomic considerations; focus on cross-border payments
As per IMF and the World Bank, for emerging economies, digital currencies can amplify the problem of currency substitution with CBDCs or stablecoins of developed countries.
A possible solution could be a programmable CBDC, where the end use can be programmed. The issuing central bank can limit use outside the issuing country, and wallets in recipient countries could be designed to allow local authorities to implement capital flow management measures and limits on non-resident holdings. Another solution could be tactical pricing mechanisms like fees on very large or frequent cross-border transactions to limit cross-border use. Multilateral collaboration would be the key to success.