RBI Governor advocates for cautious and gradual CBDC implementation

Shaktikanta Das, the Governor of the Reserve Bank of India (RBI), emphasised the need for a cautious approach to the rollout of Central Bank Digital Currencies (CBDCs) during the RBI@90 Global Conference on Digital Public Infrastructure and Emerging Technologies.

Das highlighted the complexities of implementing cross-border digital currency interoperability, pointing out that these challenges would require significant trade-offs and careful consideration.

He stated that while technical obstacles might be overcome through the adoption of common international standards, the creation of a robust governance framework is essential for the long-term success of CBDCs.

Das elaborated: "Technical barriers may be surmounted by using common (international) technical standards. Further, the governance structure or management framework for long-term sustainability would also need to be finalized."

The governor underscored the importance of a gradual rollout of CBDCs, driven by data and insights gathered from pilot programs, to fully understand their potential impacts before a widespread implementation.

He warned against rushing the deployment of a system-wide CBDC without first generating sufficient user data to inform its development: "Such understanding would emerge from generation of user data in pilots. Actual introduction of CBDC can be phased in gradually."

Das also spoke on the potential of CBDC programmability to enhance financial inclusion, suggesting that programming the end use of funds, such as for agricultural inputs, could help banks and other financial institutions ensure the proper identity of beneficiaries and the appropriate use of funds.

In addition to digital currencies, Das addressed the rising influence of artificial intelligence (AI) in the financial sector, noting both its potential advantages and the challenges it introduces.

He emphasised the importance of transparency and accountability in AI applications, particularly in areas like loan approvals, where understanding the AI models is crucial for ensuring responsible and fair outcomes.

Das called for financial institutions to rigorously evaluate the training data used in AI models to avoid biases and protect privacy, underscoring the need for ethical AI practices.

The RBI governor urged central banks and governments to actively promote the development of trustworthy AI systems, with a strong emphasis on data privacy, explainability, and accountability.