Central Bank Digital Currency | 22 Jan 2026

Source: TH 

Why in News? 

The Reserve Bank of India (RBI) has recommended placing a proposal to link BRICS countries' central bank digital currencies (CBDCs) on the agenda for the 2026 BRICS summit (host-India).  

• The RBI’s proposal builds on a 2025 declaration at a BRICS summit in Rio de Janeiro, which pushed for interoperability between members’ payment systems ⁠to make cross-border transactions more efficient. 

What is Central Bank Digital Currency? 

• About: A CBDC is a digital form of a country's fiat currency, issued and backed directly by its central bank. It represents a liability of the central bank, similar to physical cash (banknotes and coins) or reserves held by commercial banks at the central bank.  
  • Unlike cryptocurrencies such as Bitcoin, which are decentralized and typically volatile, a CBDC is centralized, stable in value (pegged to the national currency), and functions as legal tender. 
• Functioning: CBDCs use cryptography for security, integrity, and authentication.  
  • Techniques include encryption for data protection and digital signatures to authorize transactions.  
  • Privacy-enhancing methods like zero-knowledge proofs balance anonymity with regulation. 
• Objective: It aims to modernize payment systems amid the rise of private digital currencies (e.g., stablecoins) and declining cash, focusing on efficient and inclusive financial systems.  
• Benefits:  

• Key Characteristics: 
  • Issuer and Backing: Issued exclusively by the central bank, ensuring full faith and credit of the government. It is not issued by private entities or commercial banks. 
  • Digital Nature: Exists solely in electronic form, recorded on centralized ledgers, distributed ledger technology, or hybrid systems. It enables seamless digital payments without relying on intermediaries for core settlement. 
  • Purpose and Availability: Designed as a complement to (not a replacement for) physical cash and existing bank deposits. It serves as a means of payment, unit of account, and store of value. 
• Types: A retail CBDC (rCBDC) is for the general public’s daily payments like transfers and purchases. A wholesale CBDC (wCBDC) is limited to banks and institutions for interbank settlements and large transactions. 
• Distinction from Existing Digital Money: While most money today is already digital (e.g., bank account balances or mobile payments), those are liabilities of commercial banks. A CBDC is a direct claim on the central bank, offering the highest level of safety and liquidity comparable to cash. 
• Global Context: The Bahamas became the first country to launch a nationwide CBDC named Sand Dollar in 2020, followed by Nigeria’s eNaira, also launched in 2020. Over 90% of the world’s central banks are exploring CBDCs, and around 60% are already conducting tests or proofs of concept.  
  • While no BRICS member has fully launched a digital currency, all five are running pilot projects.  
  • The main national CBDCs are Brazil’s Drex (advanced pilot), Russia’s Digital Ruble (ongoing pilot with limited commercial use), India’s e-Rupee (7 million retail users), and China’s e-CNY (most widespread pilot), while South Africa remains in the research stage.