India Eyes State Digital Currency to Cut $90 Million Banknote Bill

India's central bank is researching how to introduce a rupee-backed central bank digital currency (CBDC) into its monetary policy in a bid to reduce its hefty annual bill for minting physical cash.

The news was revealed in the Reserve Bank of India's (RBI) annual report, published Wednesday, which indicated an inter-departmental unit has already been formed within the organization to study the "desirability and feasibility to introduce a central bank digital currency."

The effort apparently comes in response to a rapidly changing landscape of digital payments and the "rising costs of managing fiat paper/metallic money," the bank said.

A news report from the Economic Times on Thursday further indicated the RBI also said that, for 2018, the cost of printing paper notes alone totaled nearly $90 million.

While the RBI did not reveal whether the potential CBDC may be blockchain-powered, it claimed the utilization of distributed ledger technology (DLT) in payment and settlement solutions "holds the promise of significant economic benefits in future."

Meanwhile, in contrast to its support for adoption of DLT at a state level, the RBI again toughened its stance on crypto trading in the report, shifting its focus to transactions between individuals following its ban on bank accounts for exchanges announced in April.

"Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased usage of cash," the RBI warned in its yearly report, adding:

"Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on anti-money /CFT and taxation issues, require close watch."

Since the RBI's bank account ban went into effect in July, local exchanges have been adopting various methods to find new revenue models, including moving business focuses to peer-to-peer trading.

Indian rupees image via Shutterstock