A public discussion paper on the prospects of open source CBDC (Central Bank Digital Currency) in financial access programs for the underbanked was published by Muellners Foundation.

Abstract

Over the last few years, with the increasingly faster policy reforms and technological developments, India has seen an accelerated growth in the digitisation of its economy.

After a tremendous demonetisation and remonetization exercise(2016-18), inexpensive data plans from the telcos, increased smartphone usage, UPIand e-RUPI  services changed the overall payment ecosystem of the economy.

The Indian economy has also noticed a surge of upskilled STEM talent in FOSS lifecycle management, creating a possibility of an open source CBDC for inclusion of the underbanked.

However, this growth story has reached to only 100 million active users largely in the Tier 1 cities, leaving over one billion “Bharatvasis” behind. While demographic factors like age, gender and income are relevant factors that determine the choice, there is compelling evidence that a person’s usage of digital payment methods is influenced by their perception of the instruments, as well as trust in the overall payments framework and banking system in general.

There are visible signs showing that Bharatvasis are ready to move to digital payments provided there are simple and easy-to-use products available in the market.

• With RBI’s launch of an open source CBDC, India’s burgeoning payments ecosystem can directly benefit from offering consumers a bouquet of digital payments that will not only foster financial inclusivity but also spark off a surge in digital transactions.
• The coronavirus pandemic response measures required Central Banks across the world to unleash unprecedented fiscal and monetary stimulus. At a national level, the use of CBDC would enable RBI to directly stimulate the economy down to Bharatvasis, through the support of fiscal subsidy transfer – helicopter money.
• Open source “CBDC” has a potential to act as a low cost medium of exchange for both domestic and cross-border (inward/outward) remittances, e.g for migrant workers. Open source CBDC can make payments cheaper, faster, and more secure.
• CBDC could provide a way to support different classes of use cases such as multi-signature and co-ownerships, self custody , escrow etc. These cases provide resource management in an efficient manner.
• CBDC can be based on existing protocols to support interoperability with different distributed ledgers, making it easy for counterparties to reduce risk and provide services across any protocol.
• Implications of open source CBDC for the Central Bank monetary policy strategy and operating procedures.
• An open source CBDC could increase the productivity rate at lower income households and small businesses.
• CBDC could be well designed as interest bearing assets that can be tracked directly from Central Banks,  interest rate adjustments would no longer be constrained by any lower bound in response to economic shocks.
• As mentioned above “helicopter money”, CBDC eliminates the need for having any kind of inflation buffer.

This paper provides insights, discusses challenges, and provides technology-based recommendations for the Reserve Bank of India(RBI) to launch a CBDC using open source best practices.

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