ABSTRACT: In India, the Reserve Bank of India (RBI) is authorised under the RBI Act to issue Bank Notes which have legal tender and is guaranteed by the Central Government for honour and commitment. This in a way represents the Fiat Currency, which is issued not against commodities like gold or silver but backed by the Government. Until the advent of technology in the space of currency management in the form of digital currency, virtual currency or electronic money, e-money etc (as it is commonly called), there has not been implicitly written law about the same.

Additionally, the Payment and Settlement Systems Act, does define the payments system as a system used between a payer and a beneficiary which enables payment against the usage of goods or services. RBI in its recent report[1] explained “e-Money” as Pre-Paid Instruments issued as Wallets and Cards.

Globally, initiatives in the form of “Central Bank Digital Currency (CBDC)[2]” has been gaining momentum. Unlike decentralized cryptocurrency projects like Bitcoin, a CBDC would be centralized and regulated by a country’s monetary authority. RBI is also evaluating the possibility of CBDC implementation in India.

Initially, RBI issued restrictions on the use of regulated banking and payment channels for the sale and purchase of virtual currencies in India which was later challenged in the Supreme Court. Later the Apex Court stuck down the RBI Circular.

Under the digital India campaign, Indian Government as also the financial regulator RBI are evaluating the possibility of having the government back digital currency by banning private virtual currency to (a) overcome any ambiguity created due to Apex Court Judgement and (b) to legalise the Government backed digital currency. This could be a reality as the budget 2021, may see a new legislative proposal towards “India’s Own Digital Currency”, which could be the dawn of the new digital area when India joins hands amongst the global emerging economies towards a digital currency revolution.

 KEYWORDS: Cryptocurrency, CBDC, RBI, Digital Currency, Bitcoin


As per the 2020 Global Crypto Adoption Index (Chainalysis, 2020) published by the blockchain data analytics firm, India stood 11th rank amongst the ranking table of 154 countries across the globe to identify the adoption rate of cryptocurrency. The word “Cryptocurrency” (or other interchangeable words used in lieu of such as “Virtual Currency, “Private Currency” or “Digital Currency”) has been defined globally as a form of virtual asset which uses cryptography to secure transactions which are financial in nature. As cryptocurrency is based on blockchain-led technology such as Digital Ledger Technology (DLT), one of the cryptocurrency’s attributes is its decentralized operation and control. Due to this regulators and central banks across the world have had apprehensions about the high degree of anonymity, which raises eyebrows due to the possible financial crime risk such as Anti-money laundering, tax evasion etc.

As per the report of the attorney general’s cyber digital task force of the U.S. Department of Justice, it was found that the illicit usage of cryptocurrency typically falls into three categories:

  • financial transactions associated with the commission of crimes;
  • money laundering and the shielding of legitimate activity from tax, reporting, or other legal requirements; or
  • crimes, such as theft, directly implicating the cryptocurrency marketplace itself.

(Justice, 2020)

In India, the banking regulator i.e., the Reserve Bank of India (RBI) in the year 2018 prohibited all banks in India from dealing with cryptocurrency firms which inter alia also operate crypto exchanges. Later on, after industry representations, in the year 2020, the Supreme Court of India struck down the RBI’s circular which prohibited such dealing.

In order to address the risks of the usage of cryptocurrency, globally, initiatives in the form of Central Bank Digital Currency (CBDC) have been gaining momentum. CBDC in layman’s terms would mean issuing digital fiat currency which would be based on blockchain/DLT technology. Unlike decentralized cryptocurrency projects like Bitcoin, a CBDC would be centralized and regulated by a country’s monetary authority. RBI is also evaluating the possibility of CBDC implementation in India.

It can be said that blockchain-led technology has cryptocurrencies as usage which is being evaluated the world over to enable the CBDC space for a much-controlled mechanism to issue digital fiat currency in days to come.


In order to understand India’s readiness to adopt cryptocurrency in light of global developments, a comprehensive review is needed of the new initiatives and projects being executed in other countries across the globe. It is also very pertinent to note that the adoption of blockchain-led technology is gaining momentum across various sectors. RBI has also encouraged the usage of smart contracts and digital ledger technology while calling for proposals for cohorts on retail payments, cross border payments under the regulatory sandbox created under fintech adoption initiatives in India.

However, we have also observed that cryptocurrencies (which are one of the usage or use cases of blockchain technology) need changes in the policy perspective, both from the Government and RBI’s side. RBI has encouraged and welcomed blockchain-led innovation minus its usage for cryptocurrency. As in the current arrangement, where fiat currency is issued and there is a full-fledged mechanism towards currency management/currency circulation, a similar mechanism would need to be implemented if central banks evaluate issuing digital currency. Akin to the current set-up, central banks would subject the digital currency – both in terms of storage of value and mode of exchange under its control and supervision.

India has seen a measured approach and there has been a decent amount of push from the Government of India and RBI with respect to blockchain, digital ledger technology and usage of cryptocurrency.

Major Developments relating to blockchain, DLT in India

To draw a balanced approach wherein the technology of blockchain can be used with a measured control regime of control from central bankers, the CBDC has emerged as the best-suggested option.  Currently, many countries like UK, China, Sweden, and Singapore, among others, are looking into the possibility of introducing CBDC.

The phrase CBDC has been used to refer to various proposals involving digital currency issued by a central bank. As per the Bank for International Settlements (2020 publication on CBDC), the word is defined as – “a digital form of central bank money that is different from balances in traditional reserve or settlement accounts” (Settlements, 2020). It is very clear that world-over steps are being taken to differentiate the need for having digital currency under the CBDC framework which has the elements of centralized control from the regulators. With this approach, in order to legalise its usage, there is a need for necessary amendments to the laws of the lands governing currency, banknotes and mode of storage of value and exchange. Keeping this background, this paper highlights the readiness of India on the adoption of CBDC amidst global changes.


As mentioned in Section 1, India is amongst the top countries (11th) in ranking on adoption of cryptocurrency. Further, as suggested in industry reports and start-up media reports, post the Apex court ruling to lift the ban on dealing cryptocurrency and exchanges, there has been a surge in new entrants, new investors and volume of transactions via crypto exchanges.

While presenting the budget for 2021, the Government of India did mention tabling a new bill (to be introduced in the parliament), named the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, with an intention to (a) ban private cryptocurrencies and (b) regulate official digital currency. With this development, this study is to evaluate how the adoption of digital currency, in the context of CBDC, will pave the way to digital fiat currency in India.


The present study is based on an exploratory analysis of the secondary data available in the public domain with respect to the central bank’s policy initiatives, the global market research analysis available in the public domain, the data available by the start-ups media houses specifically covering the crypto, blockchain start-ups in India.

The data has been analysed and accessed from the publication papers, articles and relevant market reports. A qualitative study of the present regulatory framework has also been done to understand the legal framework in India which covers the banking regulations, RBI circulars on virtual currencies and later apex court rulings. Furthermore, a review of the global reports on blockchain, cryptocurrency, and digital currency projects was also reviewed to understand the possible use case and its future potential.


After the careful analysis of a few of the central bank projects on the potential usages (as a use case) for the adoption of digital currency under CBDC, it can be inferred that the scope and coverage of blockchain technology for cryptocurrency is wide and comprehensive. Due to its technological complexities, it is quintessential for any central bank to analyse the need, its urgency, and priority focus areas, resulting in alteration in the existing settlement processes envisaged and possible changes required in the statutory and regulatory framework etc.

During the study of the progress of CBDC in various countries, it has come to notice that as per the recent report published by the Saudi Central Bank and Central Bank of the U.A.E. Joint Digital Currency and Distributed Ledger Project ((CBUAE), 2020), the have identified three high-level use cases of blockchain/DLT. The three use cases were as follows:

  • Use Case 1 (UC1): Payment between central banks
  • Use Case 2 (UC2): Domestic Payments between Commercial Banks
  • Use Case 3 (UC3): Cross-border Payments between Commercial banks

As a case study, if we analyse how the entire project spanned out and what kind of challenges were witnessed in the above three potential cases, the following key points can be enumerated:

  • Understanding the digital ledger technology, its nuances and the possible available options to be adopted for issuance of the digital currency under CBDC architecture.
  • Looking into the non-functional aspects of the technology which would cover the areas such as relating to anonymity, privacy and financial crime risks.
  • Identifying the broad areas which could be used for the project. For example, retail domestic remittances or cross-border remittances etc.
  • Very closely define the role of each of participant in the entire eco-system which would mean – the role of the central agency, the commercial banks/participants, the customer user interface, the settlement agency and related arrangements on the flow of the transactions.
  • To identify the existing settlement process which is primarily supported for fiat currency or e-money in the form of pre-paid instruments etc. However, a pure digital fiat currency as a mode of exchange and storage of value needs to be re-looked in its entirety.
  • To make necessary changes in the regulatory regime, and policy framework which would mean changes in the definition of currency, notes. It would also mean defining the domain of the central authority to regulate and supervise the same.
  • Government policy to clearly outline the role of private currency vis-à-vis the CBDC-backed digital currency which would be officially a government back digital form and mode of value and exchange in the country.
  • Capacity building exercise for smooth adoption of technology especially for Public Sector Banks.
  • One of the issues which has emerged while undertaking proof of concepts (PoC) of this technology among the participant banks is significant complexity in the exchange of data over the web and API-based applications.
  • To analyse the impact of the adoption of the technology on the existing arrangements especially on the usage of correspondent banking relationships among the banks.

Recently, RBI in its report on Payment and Settlement Systems in India – Journey in the Second Decade of the Millennium 2010-2020, had clarified its stance on CBDC and has outlined that – “Private digital currencies (PDCs) / virtual currencies (VCs) / cryptocurrencies (CCs) have gained popularity in recent years. In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks. Nevertheless, RBI is exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it (RBI, 2020).”

RBI did see potential in the usage of digital ledger technology (DLT) while assessing the overall technological aspects of blockchain technology. It has also been clarified that the Public and Private Key architecture of the DLT facilitates the much-needed verification process required as part of the control mechanism envisaged by the regulators.

Globally, while working on the PoC on blockchain technology for digital currency, there have been a few challenges which are highlighted. As CBDC will use the DLT as an underlying base for implementing the digital fiat cash for exchange, the inherent risks and challenges which are applicable to DLT would also be extended and applicable to the CBDC project as well.


Despite numerous disruptions, and challenges in the adoption of cryptocurrency across the globe from regulators, the current global cryptocurrency valuation stands at $1.80 Trillion. Also, there are more than 1100 (, March 14, 2021) cryptocurrency exchanges operating in the world as of date. Further, there are more than 4000+ cryptocurrencies listed in the crypto exchanges across the world as on January 2021.[3]  (, March 2021).

This clearly goes on to show that there has been no stop to the advancement of the crypto in the world including India. While no country has officially adopted the Central Bank Digital Currency, many countries like Russia, Japan, The U.S., China, and the UK are planning to launch the CBDC soon (, 2021).

After the careful analysis of multiple facets of developments, initiatives, and policy changes in this field, the few key policy recommendations for the adoption of digital fiat currency in India under CDBS space are as follows:

  • A clear policy framework on CBDC can be laid down after due consultation with the Government which aligns with (a) the national strategy for blockchain issued by MeitY, Government of India and (b) the regulatory sandbox regime adopted by all the financial services regulators in India viz., RBI, SEBI, IRDAI.
  • A roadmap to implement the CBDC which would outline the intention to utilize the current sandbox regime for possible use cases on payments, cross-border payments etc.
  • Change to the law of the lands to define the jurisdiction of acts such as banking, securities etc in light of the CBDC. If a digital currency has become a reality in days to come, necessary statutory amendments will be required to avoid ambiguity and misinterpretations.
  • Financial Services regulators may start the PoC with select commercial banks on the possible usages of the digital currency. This is suggested keeping in mind the developments in other countries wherein it has been contemplated to test on multiple levels.
  • To bring focus on awareness and capacity building amongst the banks considering the need for technological advancements.
  • To define the key regulatory requirements on financial crime compliance which would include anti-money laundering etc, if digital currency will be used as a mode of storage of value and exchange.

The government has set up expectations right with a clear strategy for the adoption of blockchain technology. Likewise, there has been constant review and evaluation undertaken by RBI in fostering the fintech start-up ecosystem under the regulatory sandbox regime. RBI has also covered blockchain-led technology as one of the design parameters while seeking proposals from start-ups on various cohorts for testing financial products and services.

While RBI is quite clear in adopting blockchain, private cryptocurrency has not been encouraged because of obvious reasons such as anonymity, riskiness and speculation. With the government mulling to bring in laws to regulate private cryptocurrencies and have a clear roadmap for CBDC-led India’s own digital currency, there are many more important developments envisaged in days to come.

India has to adopt a phase-wise PoC model to experiment with the creation of digital currency and study the possible area where it can be used effectively. RBI has also used the regulatory sandbox approach to fuel the changes of innovation in this field. In order to have a clear plan, we may have to wait and watch as to how RBI put forth the plans for execution for CBDC. If India needs to create a cashless economy, the chances of innovation on domestic and cross-border payments are high. However, the change comes after due consideration of the legal framework and compliance with KYC, AML and other risks. Hence, there is a need for a balanced and phased manner of adoption of change in digital currency, DLT.


One of the important implications of the study is to agree with the fact that India can’t be oblivious to the developments happening globally. There is a need to have a phased-out plan and clarity to consider the adoption of digital fiat currency under CBDC, with a comprehensive implementation framework in place.


(CBUAE), S. C. (2020). Project Aber. SAMA & CBUAE., a. p. (March 14, 2021). as per as per

Chainalysis, B. d. (2020, September 8). The 2020 Global Crypto Adoption Index . Annual, p. 131. (March 2021). (2021).

IREDALE, G. (2020). Top 10 Blockchain Adoption Challenges. 101 Blockchains, 2.


RBI. (2020, February). Blockchain, DLT Technologies. Periodical – Bulletin, p. 13.

RBI, D. (2020). Payment and Settlement Systems in India -2010-2020. Mumbai: RBI.

Settlements, B. f. (2020). Central Bank Digital Currency. BIS. (March 14, 2021).

[1] Payment and Settlement Systems in India, Journey in the Second Decade of the Millennium – 2010-2020 (Jan, 2021)

[2] Central bank digital currency (CBDC) would use digital tokens and blockchain technology to represent a country’s official currency.

[3] As per the market research reports and inputs available in the Investopedia.

Notes: This research paper was 1st published at VIPS National Conference, 2021 by Abhishek R. Sharma.

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