Recently Union Finance Minister Nirmala Sitharaman announced the Reserve Bank of India (RBI) will soon issue a central bank-backed digital currency (CBDC).[1]This expresses RBI’s stance on cryptocurrencies and other private currencies. RBI has raised concerns about terror funding, money laundering, and tax evasion with private cryptocurrencies like Ether, Bitcoin, etc. It is expected that the digital currency to come into circulation from 1st April 2023, this will mirror the physical currency in digital form and it is more like a government-mandated electronic wallet, the digital currency would be numbered in units, just like every fiat currency has a unique number.[2] The exact regulation governing digital currency has not been finalised yet but it is expected that the currency will be based on blockchain technology. Blockchain technology can be seen as a public ledger that has copies spread out over multiple locations that are called nodes. Each node usually refers to individual computers with copies of the ledger.[3]


Money is one of the most important parts of the History of Humans throughout the evolution of money, the currency has taken several different forms changing according to demand and technology. In the early days, people used to use the barter system as a means of exchange, people traded goods and services according to their needs but soon many shortcomings came to notice. For example, as someone wants 50kg rice in exchange for 10kg pulses, but the other person who has pulses did not want rice in return but wanted clothes so it became very difficult to find someone who wants and has goods to exchange that both of them desire. Later coins were introduced, earlier they were made of metal, silver, gold, etc. Coins were a huge milestone in the history of money as they allowed people to exchange goods with coins which made doing transactions very easier but due to the bulky nature and difficulty in carrying currency notes came this allowed the easy transfer of money from one person to another. However, with the growth of eCommerce and the Internet boom, online payments have become increasingly accessible to a lot of people.


CBDC is the legal tender issued by the Central Bank in a digital form. It is similar to fiat currency only difference being it is in digital form. This can be used by people and is exchangeable one-to-one. These units of digital currency would be included in currency in circulation. It will be like a government-backed electronic wallet. Fiat currency – This currency is issued by the government or central bank of the country and it is not backed by a commodity but by the government that issues it. For example – Indian Rupee


Digital modes of payments are becoming popular in India which has led to a decrease in the use of paper currency. Central Banks have recognised this as an opportunity to promote digital currency also Governments across the world want a substitute for private digital currencies which are recently gaining popularity by bringing their digital currency to disincentivize the usage of private digital currencies. Also, this will become efficient in countries where there is high usage of physical cash like Germany and India.

Cryptocurrencies have been used by terrorists and were also used to transfer money country illegally without any check from the Government or Central Bank due to their nature which the Government does not have any control over that. There are also a lot of questions regarding the volatility of the cryptocurrency as these are not pegged to any asset or currency nor regulated by sovereign banks, so its value is solely based on the demand and supply relationship due to this the value of these currencies is very volatile but digital currency being issued by central banks will have stagnant values and will not be that much dependent on market conditions so people will not have fear of losing value. The issuance of digital currency will help India to be far from some of the developed countries like China. China has already begun its trails of digital currency and even has plans to roll out digital yuan for use by athletes and spectators at Beijing Winter Olympics starting this week. The U.S Federal Reserve and Bank of England are also looking into possibilities for their economies.[4] Though the introduction of CBDCs will incur a lot of investments to create and maintain CBDCs it will also lead to a decrease in tax evasion, printing cost of currency, this will also help in removing counterfeit currency from the market. As the use of cryptocurrencies based on the U.S Dollar and other private currencies is rising CBDCwill retain the public’s preference for the Indian rupee.


Central Bank last year had requested the parliament for amendments in the Reserve Bank of India Act, 1934 to enhance the scope of digital currency under the definition of ‘banknote.’[5] According to RBI, a CBDC is defined as “a legal tender and a central bank liability in digital form denominated in sovereign currency and appearing on the central bank balance sheet.” In 2021 Cryptocurrency and regulation of Official Digital Currency Bill, 2021 was brought to create a facilitative framework for the creation of the RBI issued digital currency which isn’t officially approved yet. Presently India follows Minimum Reserve System to issue currency which was adopted in 1956. This system allows RBI to keep a minimum reserve of Rs. 200 crores comprising foreign currencies, gold coins, and gold bullion (minimum of 115 crores in the form of gold). There is no limit for the RBI to issue currencies by keeping this minimum reserve.[6]

According to Section 25,[7]“The design, form, and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the Central Board.” So if Section 25[8] is taken into consideration, It looks like RBI has the power to issue currency in digital form if it is approved by the Central Government and recommendations by Central Board are considered. Further Section 26[9](1) holds that “Subject to the provisions of sub-section (2), every banknote shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government.” But this situation could lead to some problems if the digital currency becomes legal tender money it is money issued by the Central Bank or Government which cannot be refused by any person in payment for transactions. Everyone is bound to accept it to discharge debts or in exchange for goods and services. Not accepting this can lead to an offence in India, which may result in a serious problem. Recently, it was observed that many shopkeepers were refusing to accept Rs. 10 coins when a lot of cases came in front of the government, the government of respective states asked them to report the case to the police station if anyone refuses to accept Rs. 10  coin and necessary action will be taken against them. While banks, financial institutions, malls, and big businesses can easily shift to the CBDC mode of payment but people in rural areas and small shops will not have the resources to accept digital currency also people in backward areas are not that educated and do not have proper knowledge of using digital currency imposing digital currency on them may be counterproductive. So instead of making it compulsory, central banks and government should leave it to people whether they want to accept it or not also if the Government wants a large number of people to adopt digital currency it can give incentives to people and provide the required technology to people of rural areas so the use of digital currency is increased.

Also, According to Section 17[10] RBI does not have the explicit power to be a banker for the general public at large. However, there are provisions in the act that allow the RBI to undertake central bank activities incidental to the performance of its functions. So it is very difficult to say whether RBI has the authorization to open access to its payments systems to the general public according to the present laws. An amendment should be made to the RBI act to provide the legal basis for the issuance of CBDCs to the general public. Some Legal changes would be required as present provisions were made keeping in mind a paper currency. Amendments would also be required in the Foreign Exchange Management Act (FEMA)[11], coinage act[12] , and Information Technology Act[13].


With the declining use of paper currency, the Government by bringing digital currency wants to incentivize the use of digital payment and also give people an alternative to unregulated cryptocurrencies. CBDCs will also help us reduce our dependency on cash, reduce settlement risk, and higher seigniorage. Digital currencies may also let people instantly pay each other which in turn would boost the economy of the country. Also, certain amendments would be required for the proper facilitation of digital currency.

Author(s) Name: Kunal Thawani (Hidayatullah National Law University, Raipur)


[1]‘What is digital rupee? And how will it work?’(The Economic Times,4 February 2022)<> accessed 6 February 2022

[2]‘India’s official digital currency likely to debut by early 2023, says top governments source’ (Firstpost, 6 Febrauary 2022) <> accessed 7 Febrauary 2022

[3]  David Rodeck, ‘What is Blockchain’ (Forbes, 9June 2021) <> accessed 8 February 2022

[4]Suvashree Ghosh, ‘India Finally Warms to Crypto With Tax – Digital Currency’(Bloomberg, 1 February 2022)  <>  accessed 6 Feb 2022

[5]‘RBI Wants To Enhance Scope of Digital Currency Under Definition of Bank Note, Proposes Amendment to Law’ (ABP live, 29 Nov 2021<>accessed 7 Feb 2022

[6]‘INNOVATIONS, W., 2022. Minimum Reserve System’ (Indian Economy, 3 November 2017) <,in%20the%20form%20of%20gold> Accessed 10 February 2022

[7]Reserve Bank of India Act 1934, s 25

[8]Reserve Bank of India Act 1934, s 25

[9]Reserve Bank of India Act 1934, s 26

[10]Reserve Bank of India Act 1934, s 17

[11]Foreign Exchange Management Act 1999

[12]Coinage Act 2011

[13]Information Technology Act 2000