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CBDC more environment friendly than other cashless modes: RBI report

Mumbai, May 4, 2023

Central bank digital currency (CBDC) or e-rupee, if designed keeping in mind the environment, social and governance (ESG) objectives, can be more environment friendly compared to alternative cashless methods, according to a RBI report.

The pilot phase of CBDC or digital rupee for both wholesale and retail uses was launched by the RBI in 2022.

“Payments effected through CBDC would be instantaneous and final, and reduced reliance on clearing corporations and other settlement infrastructure could cut down energy consumption,” the Reserve Bank of India’s (RBI) Report on Currency and Finance 2022-23, released on Wednesday showed.

The energy requirement of a digital currency depends on its underlying technological stack.

Contingent on specific details of how they are configured, CBDCs can be more energy efficient than much of the current payment landscape, including credit and debit cards.

CBDCs are significantly more energy efficient than current credit card processing centres, in part because the latter involve energy-inefficient legacy systems, the report said.

The CBDC helps curb emissions by nullifying operations such as printing, storage, transportation, and replacement of physical currency.

In 2021-22, the total expenditure on printing of banknotes was Rs 4,985 crore and it does not account for the ESG costs of printing money, the report said.

The results of a climate stress-test revealed that public sector banks (PSBs) may be more vulnerable than private sector banks (PVBs) in India, according to the report.

Climate stress tests are scenario-based exercises that assess the loss to the financial system/entities due to climate related risks by adapting the methodology of traditional stress tests to climate related exigencies.

A large number of estimates by various institutions suggest that the total financing requirements by India could be approximately 5 to 6 per cent of the annual GDP at the lower end, the report stated.

It said in India, the gap between current infrastructure and the level of infrastructure which could have been achieved in the absence of climate events would be about 5.2 per cent.

This, in turn, suggests that an additional annual investment of about 2.5 per cent of GDP would be required to replenish this infrastructure gap by 2030, it said.

The report further said the RBI is expected to set out the disclosure framework on climate-related financial risks and guidance on climate scenario analysis and stress testing shortly.

[The Indian Express]

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