Digital currency to cut RBI’s cash management costs

As the RBI has kick-started a pilot project from November 1 to launch digital rupee in the wholesale segment and subsequently plans to roll out another one in the retail segment within a month, there are several reasons behind the adoption of the central bank digital currency (CBDC) like enhancing financial inclusion and moving towards a less cash economy.A key reason that is considered to have triggered the move towards the digital rupee was reducing the cost associated with physical cash management. An RBI concept note says that the cost of cash management in India has continued to be significant. The total expenditure incurred on security printing during April 1, 2021 to March 31, 2022 was Rs 4,984.80 crore as against Rs 4,012.10 crore in the previous year (July 1, 2020 to March 31, 2021).

This cost, which does not include the environmental, social, and governance (ESG) cost of printing money, is predominantly borne by four stakeholders – the general public, businesses, banks, and the RBI. The CBDC affects the overall value of the money issuing function to the extent that it reduces operational costs related to printing, storage, transportation and replacement of banknotes and costs associated with delay in reconciliation and settlement.”Though, at the outset, establishing a CBDC creation or issuance may entail significant fixed infrastructure costs but subsequent marginal operating costs shall be very low. Cost-effectiveness of cash management using CBDC vis-a-vis physical currency provides an additional motivation for introduction of the CBDC, which may be also perceived to be environment-friendly. Complementing the higher cash requirement of the country, the CBDC will lead to lowering of cost as it would obviate the need of many processes associated with distribution of physical currency across the country. Further, given the geographical spread and pockets where making physical cash available is a challenge, the CBDC is expected to facilitate seamless transactions,” the RBI concept note said.

Another significant reason behind introduction of the CBDC is to further the cause of digitisation to achieve a less cash economy. The CBDC can be a preferred mode of holding central bank money rather than cash in any uncertain situation like the one of pandemic Covid-19. Further, the preference for cash transactions for regular expenses and small payments for its anonymity, may be redirected to acceptance of the CBDC, if reasonable anonymity is assured. This shall further the digitisation process in the country.