Page 40 - Banking Finance October 2025

A R T IC L E
ARTICLE
lenge of ensuring robust security measures and maintain- CBDC could streamline payment systems, enhance mon-
ing user privacy. Recognizing the potential risks associated etary policy effectiveness, and foster a more inclusive finan-
with digital financial services, the RBI has been proactive cial landscape. The digital rupee could potentially reduce
in implementing a multi-layered security architecture. This the costs associated with currency management, including
approach is designed to protect against cyber threats while printing, logistics, and storage, thereby optimizing govern-
facilitating secure and efficient transactions for users. the ment expenditure. Moreover, a CBDC may serve as a pow-
RBI's strategy encompasses several key components: erful tool in combating corruption and black money through
1. Encryption Protocols: The use of advanced encryption its inherent traceability and transparency. Looking ahead,
techniques to safeguard transaction data and protect the implementation of a CBDC in India could unfold a se-
against unauthorized access. ries of economic advancements:
2. Identity Verification: Robust Know Your Customer (KYC) 1. Boost to Digital Infrastructure: The necessity for ro-
and Anti-Money Laundering (AML) checks to ensure the bust digital infrastructure to support CBDC transactions
legitimacy of transactions and prevent financial crimes. could accelerate the development of nationwide high-
speed internet and secure digital platforms.
3. Transaction Monitoring: Continuous surveillance of
transaction patterns to detect and prevent fraudulent 2. Financial Inclusion: By providing an accessible digital
currency option, the RBI could bring banking to the
activities.
unbanked, thereby increasing participation in the for-
Furthermore, the RBI is committed to upholding the pri- mal economy.
vacy of individuals by implementing data protection mea- 3. Enhanced Cross-Border Transactions: CBDCs could
sures that comply with global standards. This includes lim- simplify and expedite international trade and remit-
iting the amount of personal information collected, ensur- tances, potentially positioning India as a more competi-
ing data minimization, and providing users with control over tive player in the global landscape.
their data. The central bank is also exploring the use of
privacy-enhancing technologies such as zero-knowledge India's monetary policy and operational
proofs to enable transaction validation without revealing
sensitive information. This delicate balance between secu- framework.
rity and privacy is crucial for the successful adoption and India's banking system has one of the largest networks of
trust in the emerging CBDC ecosystem. banks in the world. As per the Reserve Bank of India (RBI),
the launch of private cryptocurrencies such as Bitcoin has
The introduction of a Central Bank Digital Currency (CBDC) led to turmoil in the Indian Economic System since they are
by the Reserve Bank of India (RBI) has the potential to revo- not legally governed by the government and are used for
lutionize the way cross-border payments are conducted. unlawful activities. As a consequence, CBDCs provide a
Traditionally, international transactions have been subject better alternative to private cryptocurrencies, preventing
to multiple intermediaries, high fees, and long settlement disruptions and shocks caused by Bitcoin and other
times. With the advent of a CBDC, these transactions could cryptocurrencies. CBDCs can be used as an alternative to
become more streamlined and efficient, as the digital cur- cash in retail payments. Several driving factors underpin the
rency would enable direct transfers between parties, re- consideration of retail CBDC implementation:
ducing the need for intermediaries and potentially lower- Decline of Cash: Central banks respond to the dimin-
ing transaction costs. Moreover, a CBDC could offer en- ishing use of physical currency, aiming to address con-
hanced traceability and security, mitigating risks associated cerns related to financial inclusion and monetary policy
with fraud and money laundering. implications
Emergence of Cryptocurrencies and Stablecoins: The
Future Prospects: How CBDC Could rising popularity of cryptocurrencies and stablecoins ne-
Transform the Indian Economy cessitates central banks' vigilance, mitigating potential
Exploring the transformative potential of CBDCs, the Indian risks to financial stability.
economy stands on the cusp of a significant overhaul. With Payments Innovation: Introducing retail CBDCs can
the Reserve Bank of India at the helm, the integration of a foster innovative payment solutions, serving as a cata-

36 | 2025 | OCTOBER | BANKING FINANCE