Technology for MSMEs: According to RBI, a 2021 survey by the Bank of International Settlement (BIS) of central banks in the world found that 86 per cent were actively researching the potential for CBDCs, 60 per cent were experimenting with the technology and 14 per cent were deploying pilot projects.
Technology for MSMEs: A distributed ledger technology (DLT)-driven ecosystem powered by Central Bank Digital Currency (CBDC) could create partner ecosystems which could increase the efficiencies in value chains and reduce the settlement cycles for MSMEs in cases such as cross border payments, said a report by Deloitte on Wednesday. A CBDC is essentially a legal tender issued by a country’s central bank in a digital form as a medium of exchange, store of value and unit of account. It is akin to the fiat currency that is exchangeable one-to-one with the fiat currency. On the other hand, DLT is more commonly known as blockchain technology.
“Currently when the payment request is raised in let’s say an export scenario by an MSME for the order it has shipped, the money moves from the importer’s bank account to his/her country’s central bank which then travels to the MSME promoter’s central bank and then to his/her bank account. The settlement takes a few days but if you have a digital currency then payment can be settled instantly. This is of great benefit for MSMEs as well,” Monish Shah, Partner, Deloitte India told Financial Express Online.
The digital currency, for instance, the proposed digital rupee in India’s case backed by the Reserve Bank of India (RBI) with instant settlement would likely improve the overall flow of money for MSMEs by shrinking the time and cost of making payments and thus would improve their creditworthiness without settlement risk or cross-currency settlement risk. “DLT ecosystem could enable credit profiling and better cashflow predictions to improve the efficiency in the sector in terms of MSME lending,” the report titled Central Bank Digital Currencies: Building Block of the Future of Value Transfer said.
“Eventually all credit schemes by the government for MSMEs could run through digital rupee. I would be crystal gazing at this time but the way the digital rupee might get rolled out is that RBI would first pilot it with banks for inter-bank settlement before extending it to corporates for them to have a digital rupee account and then moving it further to all MSMEs selling to corporates,” added Shah.
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According to RBI, a 2021 survey by the Bank of International Settlement (BIS) of central banks in the world found that 86 per cent were actively researching the potential for CBDCs, 60 per cent were experimenting with the technology and 14 per cent were deploying pilot projects.
The adoption of CBDC was justified for reasons such as first, central banks, faced with dwindling usage of paper currency, seek to popularize a more acceptable electronic form of currency; second, jurisdictions with significant physical cash usage seeking to make issuance more efficient like Denmark, Germany, or Japan or even the US; and third, central banks seek to meet the public’s need for digital currencies, manifested in the increasing use of private virtual currencies, and thereby avoid the more damaging consequences of such private currencies, RBI said.
Moreover, given India’s ‘demographic dividend ‘and ‘data dividend’, Shah said, DLT-based digital rupee is likely to have a huge impact on the future of digital payments.
