A DISSERTATION REPORT

ON

AN EXPLORATORY STUDY ON DIGITAL CURRENCY IN INDIA AND ITS

IMPLICATION FOR THE FINANCIAL SYSTEM

BY

RUBY SINGH

SUBMITTED TO

CHAUDHARY CHARAN SINGH UNIVERSITY, MEERUT

IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF THE DEGREE OF

PHILOSOPHY OF DOCTOR IN COMMERCE

UNDER THE GUIDANCE OF

IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF THE DEGREE OF

PHILOSOPHY OF DOCTOR IN COMMERCE

UNDER THE GUIDANCE OF

PROF. HIMANSHU AGARWAL

 INDEX

Acknowledgements

Declaration

Index

List of Tables

List of Figures

Chapter 1 Introduction

Chapter 2 Review of Literature

Chapter 3 Research Methodology

3.1 Objectives of Study

3.2 Significance of Study

3.3 Scope of Study

3.4 Data Collection

3.5 Tools of Analysis

3.6 Limitations of Study

Chapter 4 Data Analysis and Interpretation

Chapter 5 Conclusion

6.1 Findings

6.2 Suggestions

6.3 Conclusion

References
 LIST OF TABLES

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V
Chapter No – 1.
INTRODUCTION
The financial ecosystem is undergoing a significant transformation worldwide in the recent
decade. The rise of cryptocurrencies like bitcoin, etherum and dogecoin have rotated the
financial system and trade mechanisms at 360 degrees. It has called on the new dilemma for
economies especially, developing economies to remain on traditional financial system or
adopt some cryptocurrency like financial system to sustain economic growth. Therefore, the
governments started to explore the opportunities of a ‘their own form of cryptocurrency’ with
no risk to common man.

India is also not distinct from other countries as it is encountering the rapid transactions in
cryptocurrency. Thus, India too planned to launch its own controlled model of cryptocurrency
by a common name i.e., e-rupee or digital rupee. The ease of cross-border transactions,
potential for financial inclusion, and lower transaction costs are some of the key drivers of the
quick adoption of digital currency in India. Moreover, the unmatched success of Unified
Payments Interface (UPI) and its successful adaptation to the needs of common Indian man
has created a launchpad for digital currency in India. Thus, government of India took upon the
opportunity and broadcast it’s safe to citizen cryptocurrency’ – e-rupee or digital rupee –
backed by the Central Bank. Officially, CBDC (Central Bank Digital Currency), unlike
cryptocurrency, uses entirely centralized blockchain technology and is backed by government.
Financial Inclusion, Reduced Transaction Costs, and Improved Efficiency in transactions lead
to widespread benefits of digital currency (CBDC) in India. Apart from these widespread
benefits, there are some disturbing risks and challenges like Regulatory Concerns, Volatility
and Security and Fraud Risks are attached to the launch of digital currency.
Digital currency is merely available electronically or digitally; it cannot be obtained physically.
Other names for it include digital money, cyber-cash, electronic money, and electronic
currency.

Computers and mobile phones can be used to access them. An middleman is not needed while
using digital currencies for transactions. While not all cryptocurrencies are digital currencies,
all cryptocurrencies are 100 percent digital.

Digital money isn't tangible. You can only transact via computers, smartphones, or electronic
wallets. It can be used to pay for services and make purchases just like any other fiat money.

Digital currency is mostly used for rapid transactions. It may be used to make cross-border
payments with ease when connected to compatible devices and networks.
Transactions involving digital currencies are typically quick and inexpensive since they are
performed directly between the parties without the use of intermediaries. Transactions entail
the essential record-keeping and openness in business dealings.

David Chaum introduced the idea of digital cash through a research paper in 1983. In 1989,
he founded Digicash an electronic cash company to commercialize the ideas in his research.
E-gold was introduced in 1996. In 1998 Paypal came into the picture. In 2009, bitcoin was
launched which is a decentralized blockchain-based digital currency with no central server and
no tangible assets held in reserve. In 2009, bitcoin was launched, which marked the start of
decentralized blockchain-based digital currencies with no central server, and no tangible
assets held in reserve. Also known as cryptocurrencies, blockchain-based digital currencies
proved resistant to attempt by government to regulate them, because there was no central
organization or person with the power to turn them off.
India has made impressive progress towards innovation in digital payments. India has enacted
a separate law for Payment and Settlement Systems which has enabled an orderly
development of the payment eco-system in the country. The present state-of-the-art payment
systems that are affordable, accessible, convenient, efficient, safe, secure and available
24x7x365 days a year are a matter of pride for the nation. This striking shift in payment
preference has been due to the creation of robust round the clock electronic payment systems
such as RTGS and NEFT that has facilitated seamless real time or near real time fund transfers.
Furthermore, the introduction of mobile-based payment systems like BBPS, the launch of UPI
and IMPS for instantaneous payment settlement, and the establishment of National Electronic
Toll Collection (NETC) to enable electronic toll payments have been the pivotal events that
have revolutionized the nation's payments ecosystem and garnered global recognition. These
payment methods' ease of use guaranteed their quick adoption since they gave customers a
substitute for cash and paper checks.
Private virtual currencies differ significantly from the traditional understanding of money.
Since they lack intrinsic worth, they cannot be classified as commodities or claims on
commodities. In recent years, private cryptocurrencies have grown rapidly, posing a challenge
to the basic idea of money as we know it. Cryptocurrencies, which tout the advantages of
decentralization, are being heralded as a breakthrough that will upend the established
financial system and bring about decentralized finance. But the very nature of
cryptocurrencies is to work around the well-established, regulated systems of intermediation
and regulation, which are essential to maintaining the integrity and stability of the financial
and monetary ecosystem.

The Reserve Bank of India, tasked with maintaining the nation's financial stability and guarding
the framework for monetary policy, has often pointed out the different risks associated with
cryptocurrencies. Because of their detrimental effects on the financial system, these digital
assets jeopardize the macroeconomic and financial stability of India. Furthermore, a greater
spread of cryptocurrencies could limit the ability of the nation's monetary authorities to set
and enforce monetary policy and the monetary system, which could seriously jeopardize the
stability of the nation's financial system.
A high-level inter-ministerial committee (IMC) on the governance and use of virtual currencies
in India was established in 2017 under the Department of Economic Affairs in the Ministry of
Finance (MoF). The group's recommendations included the use of distributed ledger
technology (DLT) to create a digital version of fiat currency. A special group to study the legal
and technological growth of CBDC has been invited, consisting of the Reserve Bank of India
(RBI), the Ministry of Electronics and Information Technology (MeitY), and the Department of
Financial Services of the Ministry of Finance (MoF). While cryptocurrencies were not yet
recognized by the government, RBI began preparing for the creation of future CBDCs.
A regulatory sandbox to test next-generation technologies for cross-border payments was
announced by the RBI on December 16, 2020. The purpose of the sandbox is to gather field
test data and evidence of the benefits and hazards to the financial ecosystem. The Indian
government put forth a bill on January 29, 2021, which would outlaw cryptocurrency trading
and investment while granting the RBI legal authority to create the CBDC, also known as the
"programmable digital rupee," by utilizing the knowledge and expertise obtained from
managing the Unified Payments Interface (UPI), Immediate Payment Service (IMPS), and Real-
time Gross Settlement (RTGS) for distribution and validation.
According to the RBI's 2021 Currency and Finance Report, the sovereign-backed CBDC is
required to encourage direct transfers that lead to financial inclusion and the non-anonymity
of financial transactions. It needs to adhere to international and national rules against
economic terrorism and money laundering. The first phase of the CBDC trials was scheduled
by RBI to begin in December 2021. However, it is currently scheduled for Q1 2022, with a
phased nationwide implementation to follow. Governor Shaktikanta Das stated that the RBI is
now debating whether to employ distributed ledger technology or a centralized approach.
The RBI began an internal review of the CBDC's scope, legal framework, calibration,
technology, distribution, and validation process despite the fact that a preliminary research
will soon be undertaken. The review was motivated by the rise in digital transactions during
the COVID-19 pandemic.
The Coinage Act, 2011, the Foreign Exchange Management Act (FEMA), 1999, the Information
Technology Act, 2000, and the Crypto-currency and Regulation of Official Digital Currency Bill,
2021—all of which would regulate CBDC in the nation—are being amended by the Indian
government.

CBDC – Conceptual Framework

A Central Bank Digital Currency (CBDC) is a digital form of a country's national currency that is
issued and regulated by the central bank. Unlike cryptocurrencies such as Bitcoin or Ethereum,
CBDC is a digital representation of a country's official currency and is typically considered legal
tender.
Key characteristics of CBDC include:
Central Bank Issued: CBDC is issued by the central bank of a country, making it a direct liability
of the central bank. This distinguishes it from other forms of digital currency issued by
commercial banks.
Legal Tender: CBDC is generally recognized as legal tender, meaning it is accepted as a medium
of exchange for goods and services within the country.
Digital Form: CBDC exists in digital form and is stored electronically. It may be accessible
through digital wallets or other digital payment systems.
Government-backed: CBDC is backed by the government and is considered a sovereign form
of money. Its value is derived from the trust and confidence in the issuing central bank and
government.
Controlled by the Central Bank: The central bank has control over the issuance, distribution,
and regulation of CBDC. This allows for direct control over the money supply and monetary
policy.
CBDC can be implemented in two main forms:
Retail CBDC: Accessible to the general public, allowing individuals and businesses to use it for
daily transactions. It serves as a digital alternative to physical cash.
Wholesale CBDC: Restricted to financial institutions and facilitates interbank transactions,
settlements, and other financial activities. It is not directly used by the general public.

In the context of India, the concept of Central Bank Digital Currency (CBDC) has gained
prominence.

The Reserve Bank of India (RBI) defines CBDC as legal tender issued by a central bank in digital
form. It is equivalent to fiat currency and can be exchanged one-to-one with paper currency.

CBDCs serve as a safe, government-backed medium of settlement, eliminating claims that

arise during transactions.

As the world shifts towards electronic payments, central banks globally are exploring CBDCs
The RBI has considered the following key design questions relating to the CBDC:
a. Role of the central bank and other entities –
The concept note evaluates three models:
i. Direct model: The central bank will be responsible for managing all aspects of the CBDC
system such as issuance, account keeping, transaction processing and verification etc.

ii. Indirect model: Consumers would hold the CBDC in an account/wallet with a bank/service
provider (an intermediary) and the transactions would be processed by the service provider.
Transaction processing and customer interface, etc. is managed by the intermediary. The
central bank would only track the wholesale balances with the intermediaries and the
obligation to provide CBDC on demand to the customers would fall on the intermediary.
iii. Hybrid model: This model is similar to the indirect model; Under this model, commercial
intermediaries (payment service providers) provide retail services to end users. However, the
central bank would maintain a ledger/ record of all retail transactions (since it is a direct claim
on the central bank). RBI in its concept paper has highlighted that the indirect model is the
most suitable architecture for introducing the CBDC in India. Under this model, the RBI would
create and issue tokens to authorised entities called Token Service Providers (TSPs) who in
turn would distribute these to the end users. All customer facing activities including customer
verification, Know Your Customer (KYC), Anti-Money Laundering (AML) checks, transaction
verification will be performed by these TSPs.
b. Whether CBDC as an instrument should be interest bearing (deposit-like vs cash-like):
The concept paper highlights that an interest-bearing CBDC (remunerative CBDC) would be
more attractive as it would serve as a store of value. It may also help in effective transmission
of central bank’s monetary policy, i.e., it would strengthen the pass through of the central
bank rates to the financial system (for example – a central bank could even set a negative
interest rate for CBDCs). However, a remunerative CBDC may make bank deposits less
attractive. This would therefore increase borrowing costs for banks and could reduce credit
supply in the market.
Further, since CDBC is an alternative to cash, the concept note argues that it should imbibe all
elements of cash. Considering this, RBI highlighted that physical cash does not carry any
interest and it would be logical to offer non-interest bearing CBDCs.
c. Token based or account based CBDC:

A CBDC can be structured as a ‘token’, an ‘account’ or a combination of both. Token based

CDBC would involve a type of digital token issued by the central bank with a unique token
number (representing a claim on the bank) – like a bank note. It would be a bearer instrument
(like bank notes), whoever holds the token would be presumed to be the owner. The token
can be held and linked with an individual’s mobile device, or a wallet provided by the TSP and
exchanged/transferred electronically. On the other hand, an account-based system would
require maintenance of records/accounts for all account holders to indicate the ownership of
the monetary balances.
d. Level of anonymity:
Cash transactions can be performed without maintaining evidence of transacting parties, it
has universality and has settlement finality. However, digital transactions usually leave a trail.
Since CBDC is intended to provide an alternative to cash transactions, RBI argues that it should
have the same characteristics that physical currency represents. Therefore, some level of
anonymity would be incorporated in the design of the CBDC. However, it would be restricted
to prevent illegal and shadow economy transactions, for example, by implementing
transaction limits. This would be similar to the transaction limits and monitoring mechanism
currently in place for large cash transactions.

Technology considerations

Since CBDC is a digital currency, technology considerations would always remain at its core to
enable the translation of overall policy objectives into effective and smooth implementation
across the country. In the context of the technology framework, the concept note discusses
various functionalities that are desirable and can be considered for inclusion in the CBDCs.
Some of these are discussed below:
• Offline access: Since major parts of rural and semi-urban areas of the country still face
connectivity and internet issues, the concept note advocates for an offline capability in the
CBDC architecture.
• Integration with the existing payment systems and interoperability: The aim of CBDC is to
complement and integrate with the existing payment infrastructure available in the country
and achieve co-existence, innovation and efficiency for the end users.
• Cross border payments enabler: RBI proposes to work together with other central banks and
networks in designing an infrastructure that can facilitate easy and seamless international
transactions.
• Security considerations: Security considerations have been given the center stage in the
overall technological framework provided for the CBDCs. The concept note has suggested
certain principles in this regard, including developing an enhanced risk management
framework, rigorous testing of user interface, cryptography and quantum resistance, etc.

• Data analytics: The CBDC platform is expected to generate huge sets of data in real time.
Thus, appropriate analytics can assist in evidence-based policy making, enforcing money
laundering regulations, serve as a rich data source for service providers for financial product
insights, among providing other benefits. Having regard to the required functionality and the
proposed design of the CDBC, the RBI has evaluated whether Distributed Ledger Technology
(DLT), more commonly referred to as the blockchain technology, can be used as the platform
for development of CBDC architecture. Scalability has been identified as one of the key issues
associated with the blockchain technology. In a DLT system, the ledger is usually managed
jointly by multiple entities in a decentralised manner and each update (i.e., for each
transaction) needs to be harmonised amongst the nodes of all entities. This limits number of
transactions that can be processed using this system and it makes it slower than the
conventional centrally controlled ledger.
The Reserve Bank of India (RBI) has taken significant steps towards the adoption of Central
Bank Digital Currency (CBDC).
Retail CBDC (e₹-R):

Launched on December 1, 2022, the retail CBDC, known as digital Rupee-Retail (e₹-R), is
designed for everyday transactions.
It exists in the form of a digital token that represents legal tender, similar to paper currency
and coins.
Distributed through financial intermediaries (banks), users can transact with e₹-R using a
digital wallet.
Transactions can be both Person to Person (P2P) and Person to Merchant (P2M).
Like physical cash, e₹-R offers features of trust, safety, and settlement finality.
It does not earn interest and can be converted to other forms of money, such as deposits with
banks.
Wholesale CBDC (e₹-W):
Launched on November 1, 2022, the wholesale CBDC, known as Digital Rupee-Wholesale (e₹-
W), serves a specific purpose.
Its use case is limited to the settlement of secondary market transactions in government
securities.
By settling in central bank money, it aims to make the inter-bank market more efficient and
reduce transaction costs.
The pilot project involves select financial institutions and focuses on enhancing settlement
processes.
Participating Banks:
In the retail pilot, the RBI has identified eight banks for phase-wise participation.

The first phase includes State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank.
Subsequently, Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank will
join the retail pilot.
The RBI’s CBDC initiative aims to modernize payment systems, enhance efficiency, and provide
secure digital alternatives for transactions. As the pilots progress, the scope will expand based
on feedback, bringing us closer to a digital currency future.
The implementation of a digital Rupee system in India will require a significant and reliable
technical infrastructure and regulatory support that can handle large volumes of transactions
and ensure the stability of the digital currency. Here are some of the key factors that would
impact the implementation feasibility:

Technical Infrastructure: Implementing a digital currency requires robust technical

infrastructure that can support the transactional volume and speed required for a large-scale
digital currency system. This would require significant investment in hardware and software,
as well as cybersecurity measures to ensure the security and integrity of the system.
Regulatory Framework: The legal and regulatory framework in which digital currencies
function needs to be clear-cut, supportive, and positive. Any project involving digital currency
would have to work within India's complicated financial services regulatory framework and
address concerns like data security and privacy.
Public Acceptance: The public's acceptance and adoption of digital currency projects is a
prerequisite for their success. Any initiative involving digital currency in India would have to
take into account the country's diverse population and varying degrees of technology
knowledge in order to secure universal adoption.
Monetary Supply and Demand:
The digital rupee, issued by the Reserve Bank of India (RBI), will become part of the overall
money supply in the economy. This inclusion will directly influence total demand and prices.
CBDCs can potentially reduce the dependence on paper money, leading to a more efficient
and streamlined financial system.
Financial Inclusion:
CBDCs can play a crucial role in enhancing financial inclusion. By providing a digital alternative
to physical cash, CBDCs enable easier access to financial services for underserved populations.
People who previously lacked access to traditional banking systems can now participate in the
digital economy through CBDCs.
Faster Payments and Reduced Costs:

CBDCs facilitate instantaneous transactions. Payments can occur seamlessly, reducing

settlement times and enhancing efficiency.

For businesses and individuals, this means lower transaction costs and improved liquidity
management.
Cashless Economy:
The launch of the digital rupee aligns with India’s vision of becoming a cashless economy.
CBDCs encourage digital transactions, reducing the reliance on physical currency.
As more people adopt CBDCs, the need for handling and storing cash decreases, leading to a
more efficient financial ecosystem.
Some challenges that were relevant at the time:
Regulatory Uncertainty: The regulatory environment for digital currencies, including
cryptocurrencies like Bitcoin, was unclear. The Reserve Bank of India (RBI) had expressed
concerns, and there were discussions about potential regulations. The lack of clear guidelines
could hinder businesses and individuals from confidently adopting digital currencies.
Security Concerns: Digital currencies are vulnerable to hacking and fraud. Security concerns,
including the risk of losing funds due to cyber attacks, were a significant deterrent for
individuals and businesses considering the adoption of digital currencies.
Lack of Awareness and Education: Many people in India were not well-informed about digital
currencies. Lack of awareness and understanding about how digital currencies work, their
benefits, and the associated risks could slow down their adoption.
Volatility of Cryptocurrencies: The value of many cryptocurrencies is known for its volatility.
This characteristic makes it challenging for individuals and businesses to use digital currencies
for everyday transactions, as the value can fluctuate significantly over short periods.
Infrastructure Readiness: A widespread adoption of digital currencies requires robust
technological infrastructure, including a reliable internet connection and secure platforms for
transactions. In some areas of India, especially rural regions, the lack of such infrastructure
could impede adoption.
Financial Inclusion: While digital currencies have the potential to enhance financial inclusion,
a significant portion of the population in India, particularly in rural areas, may not have access
to the necessary technology or the knowledge to use digital currencies.
Resistance from Traditional Financial Institutions: Established financial institutions may be
resistant to the adoption of digital currencies, as it could disrupt their traditional business
models. Collaboration between digital currency platforms and existing financial institutions
could be crucial for a smoother transition.
International Regulatory Alignment: Given the global nature of digital currencies, achieving
alignment with international regulatory standards is important. Lack of alignment could limit
cross-border transactions and hinder the seamless integration of digital currencies into the
global financial system.

Ways forward for digital currency adoption in the Indian context:

Regulatory Clarity:
The Indian government and regulatory bodies could work towards providing clear and
comprehensive regulations for digital currencies. This includes defining the legal status of
various types of digital currencies, establishing licensing frameworks, and addressing issues
related to consumer protection and fraud prevention.
Pilot Projects and Research:
Initiating pilot projects to test the feasibility and impact of digital currencies in specific regions
or sectors can provide valuable insights. Collaborative efforts between government agencies,
financial institutions, and technology companies could be essential in this regard.
Collaboration with Industry:
Collaboration between regulators, financial institutions, and technology firms is crucial for the
successful integration of digital currencies. Building partnerships can help address
technological challenges, enhance security measures, and create a more conducive
environment for innovation.
Public Awareness and Education:
Launching extensive awareness campaigns to educate the public about digital currencies is
vital. This includes explaining the benefits, risks, and proper usage of digital currencies. Public
understanding and acceptance are key factors in the widespread adoption of new financial
technologies.
Financial Inclusion:
Leveraging digital currencies to promote financial inclusion can be a powerful driver for
adoption. Digital currencies have the potential to provide financial services to unbanked and
underbanked populations, improving their access to the formal economy.
Technological Infrastructure:
Investing in and upgrading the technological infrastructure to support digital currencies is
essential. This involves ensuring a robust and secure digital payments ecosystem, including
fast and reliable internet connectivity and accessible platforms for transactions.
International Collaboration:
Collaborating with international organizations and other countries that are actively exploring
or implementing digital currencies can provide valuable insights and promote interoperability.
Monitoring and Compliance Measures:

Implementing effective monitoring and compliance measures can help address concerns
related to fraud, money laundering, and illicit activities. The use of advanced technologies,
such as blockchain analytics, can enhance transparency and security.

Innovation Hubs and Sandboxes:

Establishing innovation hubs and regulatory sandboxes can encourage experimentation and
innovation in the digital currency space. This allows startups and technology companies to
test new ideas under a controlled regulatory environment.

Policy Adaptation:
Regularly reviewing and adapting policies to keep pace with technological advancements and
changes in the digital currency landscape is essential. Flexibility in policymaking can foster a
regulatory environment that encourages responsible innovation.
CBDC, in its shape and form pushes a big question for the economies like India. “What will be
the implications for present traditional financial system?” “How public will survive without
traditional financial system?” India is a largest populated country where, 67% population live
on agriculture and nearly 23% live on marginalized jobs. Therefore, Establishment of Clear
Regulatory Frameworks, Promotion of Collaboration and Awareness and Education must be
taken as serious policy matters during the initial stage of the launch of the digital currency.
Moreover, research to evaluate the viability, scalability, and impact of digital currencies in
various sectors should be conducted widely to encash its benefits and to fade away its risks.
This way, the present study “An exploratory review of digital currency of India and its
implications for traditional financial system”, will effort to understand the CBDC, its
functionalities, coming opportunities, associated challenges and mainly its implications for
traditional financial system of India.

We will also examine the technology infrastructure needed to successfully introduce a digital
currency in India. This will cover the essential elements of distributed ledger technology and
blockchain, delving into the security and scalability issues that need to be resolved in order to
guarantee a stable digital currency system.
Significance Of The Study

An exploratory study on digital currency in India and its implications for the financial system
holds immense significance for a dissertation due to its multidimensional impact.
Firstly, it addresses a dynamically evolving aspect of finance in a country with a significant
economy. The study delves into the nascent domain of digital currency and its potential impact
on India's financial ecosystem, presenting an opportunity to contribute new knowledge to an
area that lacks comprehensive understanding.
Moreover, this study offers a platform to analyze the socio-economic ramifications of adopting
digital currencies in a diverse and populous nation like India. It considers factors like financial
inclusion, technological infrastructure, policy formulation, and consumer behavior, providing
a comprehensive view of how digital currencies intersect with India's financial system.
By exploring this terrain, the dissertation can potentially offer insights that inform
policymakers, regulators, financial institutions, and businesses about the opportunities,
challenges, and strategies associated with digital currencies. It could serve as a guiding light
in crafting policies, devising financial strategies, and fostering innovations that align with the
evolving financial landscape.

Additionally, the study's academic significance lies in its potential to contribute to the existing
literature and theoretical frameworks related to digital currencies within India's context. It
could provide a foundational understanding for future researchers, serving as a reference
point for subsequent studies in this area.
Overall, the significance of this dissertation lies in its potential to bridge the gap in knowledge,
inform decision-making, shape policies, contribute to academia, and pave the way for a
deeper comprehension of how digital currencies might impact India's financial system.
Chapter No.-2.
Review Of Literature

Lynette Shaw (2016), in article stated that,The advent of digital currency has not only brought
about a set of profound technological and financial disruptions, it has also brought about
conceptual ones as well. Cultural sociologists have long noted that there is a connection
between the stability of our structures and institutions and the lack of conscious attention we
pay to them. It is often not until we are faced with novel, ambiguous objects and events that
we start to realize how incomplete an understanding we have of the social facts and forces
that determine our individual lives and collective fates. Few would argue that in contemporary
life, money and economic value are primary determinants in these respects. It is perhaps not
surprising then, that in the face of this conceptual upheaval, we find evidence that both our
commonplace and academic notions of them have proven to be quite piecemeal and in some
cases, contradictory. Of all the many effects the strange and surprising ascent of digital
currency has had so far, one of the biggest has been its redirection of our shared attention
back toward the deeply social aspects of value and money. In the everyday course of living,
we are prone to forget that such things are being created and reproduced via our own actions
and understandings. Faced with the ambiguity of this new monetary object, however, we are
inevitably drawn again toward the realization that for all their assumed objectivity, economic
arenas are also places that we inter-subjectively constitute and shape via the ways we define
and evaluate the objects within them. Bitcoin and its accompanying bevy of alternative digital
currencies have, in both intentional and unintentional ways, momentarily lifted back the “veil
of money” for participants and academics alike.

Shiva Bissessar(2016), “Opportunities and risks associated with the advent of digital
currency in the Caribbean” to demonstrate that developed economies are embracing the
opportunity presented by digital currency and mobile money, while putting measures in place
to mitigate the risks. The case has also been made that there are specific areas in which
Caribbean economies could benefit from these advancements, and that these warrant further
understanding and exploration. These areas include cheaper remittances systems,
improvements to traditional payment systems and increased participation in the digital
economy.

Olayinka David-West , Nkemdilim Ihenachor ,Ikechukwu Kelikume (2018), in article stated

that,this study will guide current and upcoming DFS operators in organization design and
planning activities, highlighting the necessity and value of human capital and firm capabilities
and the time required for their development. The study also highlights the cogency of policy
and regulatory structures, but yet emphasizes the need for flexibility, special treatment, and
understanding.

Ivo Bahar Nugroho (2018), in Thesis “Evaluation of Central Bank-issued Digital Currency
(CBDC) Implementation Designs using Transaction Cost Economics Perspective” analysed
that, There are three CBDC design options explained in this research, which are the Retail
CBDC, Wholesale CBDC, and the Full-reserve Depository Banks (FrDB CBDC). Amongst the
impacted economic agent, the central bank and commercial banks are the ones that bear most
of the transaction costs, while the households and non-financial institutions do not need to
bear transaction costs when CBDC is introduced. This finding, however, should be reassessed
and reevaluated because it might not be generalizable to all cases. In addition, the
characterized transaction costs should be quantified to obtain a more accurate view of the
total transaction costs of each CBDC design option. This research thus has provided a
foundation for further research or studies related to the transaction costs of CBDC.

(Dr.) Manpreet Kaur (2019), in her Article “Digital Currency and its Implications for India”
stated that, Digital currencies are integral part of fintech revolution which will impact many
areas including payment & settlement systems and services. Though this concept of digital
currency is less persistent now, it will emerge and disrupt the existing processes and systems
(how). Since inception, India’s stance on crypto currencies hasn’t been encouraging. This was
evident from RBI directive to halt dealings in cryptocurrencies leading to fall of ZEBpay, India’s
largest crypto exchange, by disabling deposit and withdrawal in Indian rupees. However, it is
revealed that the move was not backed by enough research. Also, the report of the committee
set up for determining the feasibility of digital currency is still awaited. Though RBI is
apprehensive about crypto but it has no doubt in the utilization of distributed ledger
technology in payment and settlement solutions and the power of Machine learning and
Artificial intelligence. Currently, RBI shelved its plan to develop digital currency due to lack of
understanding and preparedness in dealing with it. However, 11 Indian banks are planning to
collaborate to develop new blockchain system in order to facilitate financing needs of MSMEs
(Economic times, Jan 28). A dedicated district in Telengana is planned to be formed in
association with Tech Mahindra to be named as “Block chain district”. For country like India,
digital currencies can be introduced initially for retail transactions with in accessible security
features and can be used later for investment transactions. Central bank can examine the
viability of using digital currency in combination with existing systems or providers. It can be
said in conclusion that the block chain will rule the economies all over the world in years to
come and its adoption is necessitated either by compulsion or choice.

Anjali kumari Singh (2020), “Cryptocurrency: A Study on Digital Revolution, its Impact on
Indian Economy and its Significance” concluded that crypto currency is catching the new
technology wave and its increasing importance is in the way to cope with the upcoming era
of digital revolution. Although there are a number of risks involved with this digital currency,
still billions of dollars invested in it due to its permanent transparency, traceability, low
transaction cost, no processing fees and high profile profits. A blanket ban is something else,
though if they ban the use of digital currency; it will lead to investors in trouble. Many
exchanges have been managed to stay alive through peer to peer and crypto to crypto trade
without the intervention of middleman. The ban will shut down those exchanges. Lot of job
opportunities will be ruined. Indian government should take necessary steps to regulate such
digital currency which is the future of profitable business and productiveness of economy.

Dr. Pradipta Mukhopadhyay(2021), “A Case Study on Digital Currency with a Special

Reference to India” stated that, in future the number of service providers and products that
cater to digital currencies are expected to increase in number and the corporates will carefully
consider and evaluate the potentials of crypto currencies along with monitoring the evolution
process of these currencies as they can lead to business success. Digital currencies will
definitely go on to change the world of business in future but the obstacles that the digital
currencies will have to overcome in order to become the mainstream currencies throughout
the world are not just economic but mental as well.

Abhishek Kumar(2021), “Central Bank Digital Currency and its impact on the Indian Financial
system” in his article analysed that, The CBDC will help the RBI in not only reducing the
operational cost of managing the cash it will also help in attaining financial inclusion and will
strengthen the foundation of cashless society. It will not only help the citizens but also help in
expanding the digital economy efficiently.

Katherine Foster, Sofie Blakstad, Sangita Gazi and Martijn Bos (2021), “Digital currencies and
CBDC impacts on least developed countries (LDCs)” findings that, CBDCs and GSCs will
provide alternative stores of value even when held as national fiat, impacting commercial
banks, their pivotal role in moving and storing value, and their ability to implement monetary
policy. Central banks could consider implementing monetary or fiscal policy directly through
exploiting the programmable nature of CBDCs, for example by implementing interest (positive
or negative) on stores of value to encourage saving or spending, demurrage to encourage
spending or by levying direct taxation on certain types of payments. These measures may be
viewed as having an overreaching influence on private assets from a political perspective,
although in effect they would be equivalent to commercial bank charges and interest, or Pay
as You Earn (PAYE) taxation. CBDCs as settlement instruments will impact money supply
considerations and monetary policy, prompting new regulatory considerations and alternative
approaches to implementing monetary policy, including directly through the design of CBDCs.

Raphael Auer, Jon Frost, Leonardo Gambacorta, Cyril Monnet, Tara Rice and Hyun Song Shin
(2021), “Central bank digital currencies: motives, economic implications and the research
frontier” examines the CBDCs are an idea whose time has come. If properly designed, they
present an opportunity to improve payments with a technologically advanced representation
of central bank money, one which preserves the core features of finality, liquidity and integrity
that only the central bank can provide. They could form the backbone of a highly efficient new
digital payment system by enabling broad access, and they may also help to provide strong
data governance and privacy standards.

Central Bank Digital Currencies: Building Block of the Future of Value Transfer, according to
this report ,CBDCs are a fast advancing and inevitable innovation which is likely to impact most
large national economies in the next 12-24 months. The issuance and design for CBDCs are
likely to be sovereign decisions for each jurisdiction based on their own assessment of CBDC
objectives, market maturities and related local factors. Non-interest bearing tokenized CBDCs
are closest to cash and may well be a stepping-stone for retail CBDCs. Wholesale CBDCs are
likely to be easier to implement given the institutional nature of the system and may provide
real and immediate benefits in financial markets where payments and settlements follow a
lag. Multicurrency CBDCs may follow trade flows and countries that are large trading partners
are likely to innovate earlier in this space. As digitization and globalization increase, CBDCs
have an important role to play in providing a safe, risk-free digital medium of exchange, store
of value and unit of account. Banks and other financial services players need to prepare for
this new category of asset class, its impact on their balance sheets, as well as customer value
propositions and the benefits that it offers in terms of atomic transactions and reducing
settlement risks.

Debesh Bhowmik (2022), in article “Monetary Policy Implications of Central Bank Digital
Currency with special reference to India” conclude that Price stability and financial stability
of the monetary policy of central bank may fall in a great question on the design choice issues
in India than in high income economies because the models developed by the economists in
conducting monetary policy are mostly fitted in the cashless economy under CBDC regimes
where zero bound level or negative interest rate have the possible effects from which the
behaviors of central bank and financial institutions were worked out which are not suited for
India in the initial stages of introduction rather India should improve its financial inclusion
status speedily vis-à-vis financial sector reforms. The performances of India’s nonbank and
private financial institutions are huge, India’s rural banking structure is unhealthy for issuing
CBDC, India’s high NPA structure and low profit scenario of banks having unstable banking
growth are the destabilizing factors of introduction of CBDC in India. However, it has ample
scope to develop gradually step by step approach if CBDC envisaged in actual socio-economic
conditions in India. Above all, the progress of electronic payment system in India is mostly
favorable to introduce CBDC in several stages. But it cannot be denied that the regulations
and dimensions of controls of Reserve Bank of India must be enhanced and updated to
confront with any financial and banking crises.

Afreen Begum (2022), in article “CENTRAL BANK DIGITAL CURRENCY (CBDC): CHALLENGES
AND PROSPECTS IN INDIA” demonstrates that CBDC can improve our country’s digital
economy and payment services and promote financial inclusion. Whereas Data privacy issues
are to be taken as a serious issue. If a large number of depositors take their money out of the
bank and place it into CBDC, other banks will want to attract more depositors, so they will
increase deposit rates. Banks will be able to get more deposits, but at a higher rate of interest,
also they will provide loans at a higher rate of interest. This will result in a decline in the credit-
to-GDP ratio and this is the CBDC's problem. The IMF has also discussed this issue. RBI needs
to work on cyber-attack in order to make it safe and adoptable by common people.

MALAIKA RANA (2022), “ECONOMIC OPPORTUNITIES FOR DIGITAL INDIA- CENTRALIZING IT

THE DECENTRALIZED WAY” conclude the Digital Payments and DLT technology have facilitated
the ease of banking in India today, integrating millions of people under the umbrella of
organized banking digitally. Establishing a ‘decentralized trust’ in a centralized and regulated
manner is the USP which excites the future of financial services, inclusion, and innovation in
India.

Jiemeng Yang, Guangyou Zhou (2022), “ A study on the influence mechanism of CBDC on
monetary policy: An analysis based on e- CNY” observed the perspective of money demand,
it is an optimization of the existing payment system, which will have a positive impact on the
implementation of monetary policy, so as to change the structure of money demand and
improve the money velocity. From the perspective of money supply, E-CNY issuance will
increase the volatility and expansion effect of money multiplier to a certain extent, and make
the intermediate target of monetary policy more controllable and reliable by better
controlling the total money supply, shortening the time lag rate transmission and effectively
monitoring the deposit fund of deposit account. From the perspective of monetary policy
tools, E-CNY can improve the transmission effect of existing monetary policy tools and dredge
the transmission channel of monetary policy by optimizing the reserve requirements policy,
improving the flexibility of open market operation and giving better play to the advantage of
the interest rate corridor of standing lending facility. Through the combination with structural
monetary policy tools, the central bank will achieve targeted money supply, better implement
medium-term lending facilities, precise implementation of mortgage supplementary loans. E-
CNY could also bring new monetary policy tools, provide a way of “helicopter money”. The
issuance of e-CNY will have a positive impact on the ultimate targets of monetary policy.

Peterson K. Ozili (2022), “Central bank digital currency research around the World: a review
of literature” explores the benefits and challenges of introducing a digital Rupee (also known
as the eRupee or central bank digital currency) in India. The study highlights potential
advantages such as reduced reliance on cash, lower transaction costs, and decreased
settlement risk. However, it also emphasizes the associated risks that need careful evaluation.
Legal and regulatory changes would be necessary for phased implementation of a digital
rupee in India.

Rashmi, Dabbeeru, Dr. D.N. Rao, Dr. See-ma Bushra, Dr. Krity Gulati (2022), “PROSPECTS
AND CHALLENGES Of INTRODUCING DIGITAL CURRENCY IN INDIAN ECONOMY” discussed
that CBDC is a welcoming move on the part of India, considering the advantages,
opportunities and challenges of introducing CBDC, a legally backed digital tender. With
foresight and considering trend and the development of virtual currencies globally, the time
is appropriate as India, an emerging economic and geo-political power on world horizon. The
ecosystem needed for the launch of RBI backed digital currency is already in place in terms of
half of 1.35 billion population having internet penetration and smart phone penetration of
844.4 million by the year 2022. As per RBI statistics, it printed 12 billion pieces of 500 rupee
notes (Indian Rs. 6000 billion or Rs.6 trillion) during the financial year 2020 and the cost of
printing is Indian Rs.36 billion. Considering the demographic and geographical size of the
country and with the GDP expected to grow on an average over 7 percent in the next 4 to 5
years, it is not difficult to comprehend the magnitude of the problem of the dealing in physical
cash. Hence, it may be surmised that CBDC is an absolute necessity and is need of the hour. i

Wenxuan Ma (2023), “An Introduction to The Impact of India's Use of Central System Bank
Digital Currency on the International Financial” founded that a moderate introduction policy
is conducive to the popularisation of CBDC, and that a large user base and potential user base
for digital transactions will help the people to accept CBDC, while the process of introducing
CBDC also requires attention to infrastructure development and the eradication of digital
illiteracy. Overall, the introduction of CBDC in India is of strategic importance and its monetary
policy is of value to other countries internationally. Due to the limitations of the research data
and the time constraints of the survey, there are certain research limitations in this study,
which may be limited to the particular case of India as the study focuses on the introduction
of CBDC in India. In future research, this author will look at the different ways CBDCs have
been introduced in more countries to gain a deeper understanding and study the impact of
CBDCs on the international financial system.

Peterson K. Ozili Abstract (2023), “Central bank digital currency in India: the case for a digital
rupee ” explored that Indian people who were interested in ‘cryptocurrency’ information
were also interested in ‘central bank digital currency’ information. The study also showed that
the introduction of CBDC has potential benefits such as reduced dependency on cash, higher
seigniorage due to lower transaction costs and reduced settlement risk. However, CBDC has
associated risks that need to be carefully evaluated against the potential benefits.

Md. Asraful Haque,Mohd Shoaib (2023), “ e-rupee—The digital currency in India: Challenges
and prospects” observed that India is a largely cash-based society, with a high percentage of
transactions being conducted using physical currency. This can be problematic for a number
of reasons, including the cost and time required for printing and distributing physical currency,
the risk of counterfeiting, and the difficulty of tracking and taxing transactions. The RBI’s e| –
initiative essentially aims to replace traditional currency notes in wallets and may be used to
send and receive payments via QR codes or through the respective parties’ digital Rupee
wallets. It could make it easier for people to make electronic payments and transactions,
which could increase financial inclusion and lead to economic growth. e-Rupee will be
exchangeable at par with current currencies, accepted as payment, and a secure place to keep
wealth. However, there is a challenge of adoption, as the new mode of payment may not be
readily accepted by the general public or traditional financial institutions. In order for e-Rupee
to be successful, it will need to be accepted by merchants as a form of payment. If merchants
are not willing to accept e-Rupee, it will be difficult for it to gain widespread adoption.
Education and awareness campaigns may be necessary to overcome these challenges and
promote adoption.
Research Gap
In the realm of an exploratory study on digital currency in India and its implications for the
traditional financial system, a notable research gap exists in the nuanced understanding of the
regulatory landscape. While previous studies may have touched upon regulatory aspects, a
comprehensive analysis of the existing regulatory framework is essential. This includes an
assessment of its adaptability to the dynamic nature of digital currencies and its effectiveness
in addressing potential risks and challenges.

Furthermore, the study should delve into the impact of regulatory uncertainty on the
adoption and integration of digital currencies within the traditional financial system. By closely
examining these regulatory dimensions, researchers can uncover crucial insights that bridge
the gap in knowledge regarding the legal and operational environment surrounding digital
currencies in India and how these factors shape their interaction with the traditional financial
system. This exploration is vital for policymakers, financial institutions, and stakeholders
seeking to navigate the evolving landscape of digital currencies in the country.
Research Objectives
1. To examine the Current Regulatory Landscape.
2. To explore Consumer Perceptions and Adoption Patterns.
3. To investigate Impacts on Traditional Banking.
4. To analyze Security and Privacy Concerns.
5. To evaluate Monetary Policy Considerations.