CBDCs: The New Money in Town

Aditya Gulia
5 min readNov 21, 2021


Our species developed the concept of money centuries ago. It is defined by Britannica as:

A commodity accepted by general consent as a medium of economic exchange. It is the medium in which prices and values are expressed.

Money has changed form over the centuries. From coins to notes and even digital payments, money today is ready to take another leap in the form of Central Bank Digital Currencies or as they are popularly known CBDCs.

CBDCs are nothing but a digital form of the current money in use. So, the Indian rupee note that we carry in our wallets, will now instead be in our phones. And who keeps track of the notes? The Central bank directly does it through its ledger. One can say that the very fundamental work of the banks as we see them today, will be taken over by a country’s central bank.

This ledger system will be similar to that of the concept of cryptocurrency. A crypto works on a blockchain technology which has a distributed ledger and is a decentralised form of record keeping. People hail it as a democratising technology, which hands the power to manage money back to the people, taking it away from big intermediaries.

One might think that CBDCs are at least years, if not decades away. I was surprised to know that more than 86% of the Central banks are in some stage of development of a CBDC, including the big economies like the US, China, the European Union and India. The map below shows is a CBDC tracker taken from https://cbdctracker.org.

Leading the way is China, which has doubled down on its efforts to launch its e-Yuan at the earliest. It is currently conducting trials in various provinces. The interesting thing to note here is that it has simultaneously cracked down on Crypto miners and exchanges in China. This is no coincidence and seem to be well planned initiatives of the party state. China has already distributed some 200 million yuan (US$30.7 million) in digital currency as part of pilot projects across the country.

China is currently lacking behind Bahamas, Cambodia and Nigeria, who have already launched their CBDCs. It will remain to be seen as to what timeline have the Chinese decided to take for rolling out their e-Yuan.

Why are Central Banks Rushing to launch a CBDC?

The concept of has shown some glimmer of hope to the Central Banks who until recently were staring at oblivion due to cryptocurrencies. Let us look into the reasons, why Central Banks and National Governments are interested in this project.

  1. Reclaim their Fiefdom: Crypto boomed in the post financial crisis world and this threatened the very purpose of the Central Banks. Further, it was noticed around the world that Central banks had ceded ground to private players in the financial markets. Basically, a big financial intermediary held more sway than the Chief of the Central Bank. Rise of CBDCs gives them a shot at reclaiming their fiefdom in the world of money and banking.
  2. Data: CBDCs are based on a digital ledger. It may be based on blockchain but it still hands over significant transaction data to our governments and central banks. Governments will now be able to map your receipts and payments and understand your financial behaviour.
  3. Seamless Transmission of Monetary Policy: Central banks currently have to sell-buy bonds, change repo and reverse repo rates to give effect to their desired monetary policy. This has to be done through a transmission mechanism that is inefficient and doesn’t always produce the desired outcomes. In a CBDC world, monetary policy transmission is extremely efficient and reach the target populace with a single click.
  4. Taxation Becomes Extremely Efficient: The current taxation system is cumbersome and takes too much time to complete. The whole system is now staring at an overhaul wherein the government can directly take the money from your CBDC wallet and the need for assessments and filling lengthy forms is done away with.
  5. Improved Financial System: Settlement risk in the current financial system is a major problem. In a CBDC world, we directly exchange digital notes and not bank balances. Thus the need for inter bank settlement disappears. This makes the current system much more efficient and less prone to risk.

CBDCs holds promise on the international financial front as well. I will try and explore the implication of CBDCs on the Dollar hegemony and International financial system in a separate story.

Where does India Stand?

India is leading the world in terms of digital payments innovations. Its payment systems are available 24X7, available to both retail and wholesale customers, they are largely real-time, the cost of transaction is perhaps the lowest in the world, users have an impressive menu of options for doing transactions and digital payments have grown at an impressive CAGR of 55% (over the last five years). It would be difficult to find another payment system like UPI that allows a transaction of one Rupee. With such an impressive progress of digitisation, is there a case for CBDCs? ~ T Rabi Shankar, Deputy Governor RBI

India’s transition to a digital economy has been impressive by any standards. UPI is an excellent platform to work with and attracted users from all sections of society.

But a recent survey report released by RBI on ‘Retail Payments Habits In India’ tells us an interesting story. Maximum payments in India are still in cash, for both payments and receiving money.

Another finding is that for transactions below INR 2000, cash is used predominantly.

India is in a unique situation where digital transactions are rising exponentially, and cash is still being used predominantly. Surprisingly, India’s cash to GDP ratio is currently at 14.7% which is an all time high in the history.

India had thus decided to go ahead with plans of launching its own CBDC, which might be called e-Rupi and the recent news reports say that trials are expected early next year. It is to be seen how the situation unfolds and what will be the future of India’s CBDC.



Aditya Gulia

Alumni of the Integrated Programme in Management at the IIM, Indore. Interested in Public Policy, Politics and International Affairs.