The state of CBDCs

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This week the International Monetary Fund (IMF) released a report outlining six case studies of central bank digital currencies (CBDCs). The report provides an overview of six central banks’ policies and designs, lays out best practices, and offers advice to other central banks – such as the Reserve Bank of India – that are dipping their toes into digital money.

The six chosen projects meet at least one of the following criteria:

  • The central bank has already issued a CBDC: Central Bank of The Bahamas
  • A CBDC has been or is being tested with actual households and firms: People’s Bank of China (PBUC), Eastern Caribbean Central Bank (ECCB), and Banco Central de Uruguay (BCDU)
  • A CBDC project has been brought onto the country’s political agenda and is being analysed by government or parliamentary bodies outside of the central bank: Sveriges Riksbank
  • The central bank has conducted a CBDC project and decided against issuing a CBDC for now: Bank of Canada

Goals dictate guidelines: The report noted that central banks’ policy goals help set guidelines for more detailed choices. These goals include:

  • Financial inclusion: In the Bahamas, Uruguay and ECCU member nations, financial institutions have found it unprofitable to operate in certain locations, leaving swathes of the population unbanked. In China, while the PBOC has sought to promote digital payments and financial inclusion for two decades, it estimates that around 10% of the population still lack access to basic financial services.
  • Access to payments: This remains a problem even in countries with high financial inclusion, the report said. For example, the Riksbank highlighted lack of accessibility for elderly and disabled people amid a trend toward cashless payments.
  • Efficiency: In countries where existing digital payments are relatively expensive, such as the Bahamas and the ECCU, CBDC is a potential policy tool to offer a cheaper alternative. “The non-profit nature of central banks means that they could potentially offer low-cost payments as a public good, potentially subject to the need to eventually recover costs,” it noted.
  • Resilience: The urgency of this policy goal is especially high in disaster-prone nations such the Bahamas and ECCU member states, the report said.
  • Curbing illicit use: The report noted that the Bahamas is the only country that has made combating illicit use of its CBDC a top policy goal. “Some features of cash, including anonymity and the lack of an audit trail,19 make it attractive for illicit transactions (for example, tax evasion, money laundering, and terrorist financing). CBDC could potentially reduce this problem,” the IMF said.

Design differences: The report details a range of design choices by the six central banks, including:

  • No interest payouts: One of the biggest concerns around CBDCs is that they could lead to bank runs. To limit competition between their CBDCs and existing bank deposits, the CBOB, PBOC, and ECCU don’t offer interest on their digital money.
  • Holding limits: Putting a cap on the amount of CBDC people can hold is another technique central banks use to stave off competition with commercial banks. The ECCB, for example, has an aggregate creation limit for DCash, and the Bahamas’ CBDC will soon have a feature that directs Sand Dollars over a certain limit to people’s regular bank accounts.
  • Offline payments: Offline functionality – a big part of ensuring the widest possible access to CBDCs – has turned out to be technologically complicated, the report said. “The Bahamas considers off-line functionality to be vitally important but has encountered difficulties in achieving it. The pilot revealed that the planned solution of local off-line networks—built on introducing local redundancies to the main telecommunication system—did not fully achieve the policy goal,” it said.

Written by Zaheer Merchant in Mumbai.


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BharatPe CEO Suhail Sameer and cofounder Ashneer Grover

In the latest development in the BharatPe saga, its chief executive Suhail Sameer wrote a letter to its employees on Friday morning saying the company is “under constant scrutiny and spotlight” and “what is being written is nothing but unsubstantiated rumours”.

BharatPe chief’s missive to employees comes at a time when tensions between cofounder Ashneer Grover and the company board are mounting.

Row over media leaks: Madhuri Jain, controller at BharatPe and wife of the company’s cofounder Ashneer Grover, wrote to Alvarez & Marsal (A&M) on Thursday, questioning the consulting firm about recent media leaks. A&M’s initial investigation showed that Jain and other family members were allegedly involved in financial irregularities at BharatPe, ET reported on February 4.

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Taxing crypto doesn’t make it legal, says finance minister

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On Friday, finance minister Nirmala Sitharaman said that the government has imposed a tax on cryptocurrency transactions and not done anything to legalise, ban or regulate it.

Fine tuning: Earlier, sources told us the government may broaden the definition of “virtual digital assets” to cover any new assets that may emerge in this space. It could also fine-tune the rules proposed in the budget to tax virtual digital assets after holding discussions with industry representatives and to account for the dynamic nature of the sector, officials told ET.

Impending tax complication: The government’s decision to tax cryptocurrency transactions by levying tax deducted at source is set to trigger another tax complication in the form of an equalisation levy for crypto exchanges, tax experts said.

Also read: Global exchanges await clarity on India’s crypto rules

This is because in most cases, crypto-assets bought by Indian residents through exchanges are from people not based in the country, they said.

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Infosys cofounder Nandan Nilekani said India’s proposed digital rupee should be “anonymous” as concerns about surveillance will arise if all payment transactions are recorded and are visible.

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Zomato Q3 Results: Zomato on Thursday reported a December quarter consolidated net loss at Rs 67.2 crore, narrowing it from Rs 352.6 crore reported in the same quarter last year. Revenue from operations came in at Rs 1,112 crore, up 82.47% against Rs 609.4 crore in the year-ago quarter.

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Meanwhile, Swiggy’s consolidated revenue from operations decreased by 26.6% yoy to Rs 2,547 crore in FY2021, while net losses shrunk by almost 59% from the previous fiscal to Rs 1,616 crore, according to a regulatory filing sourced from Tofler.

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FSN E-Commerce Ventures, the parent entity of omnichannel beauty retailer Nykaa, reported a 59% drop in net profit to Rs 29 crore for the quarter ended Dec. 31 from the same period last year. The company’s revenue from operations came in at Rs 1,098.36 crore, up 36% from Rs 808 crore in Q3 of FY21.

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Polygon founders (from left) Anurag Arjun, Jaynti Kanani and Sandeep Nailwal

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On Thursday, Zomato reiterated its focus on the quick-commerce segment and added that it would invest an additional $400 million in the space in the next two years. The company also outlined its lending ambition with an announcement to set up a non-banking financial company that would allow it to extend short-term credit to its restaurant partners, delivery partners and even customers.


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Curated by Judy Franko in Delhi. Graphics and illustrations by Rahul Awasthi.

That’s all from us this week. Stay safe.



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