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Regulatory Framework for CBDC in India: Navigating Legalities

Regulatory Framework for CBDC in India

Central bank digital currencies (CBDCs) have garnered much interest globally, and India is no exception. The Reserve Bank of India (RBI) is dedicated to a phased implementation of its own CBDC. However, the legal and regulatory framework surrounding CBDCs in India requires careful examination.

Navigating this difficult landscape is essential for the RBI to roll out its retail CBDC in a compliant and risk-managed fashion. This article offers a friendly, accessible overview of key considerations around regulations and legalities for India’s CBDC.

RBI’s CBDC Project

The RBI has since launched retail CBDC pilots to test technology and payment use cases in the wholesale and retail segments. Several banks are currently participating. These pilots’ learning will inform policymaking and technical infrastructure for a full-scale launch. The RBI operates pragmatically without aggressive timelines, instead favouring careful experimentation.

Updated Personal Data Protection Bill

India’s updated Personal Data Protection (PDP) Bill 2022 contains specific carve-outs facilitating public interest use cases like CBDC. It permits processing personal data without explicit consent for the ‘operation of currency’ among other sovereign functions.

Further, the RBI is exempted from many compliance burdens otherwise applicable to commercial data fiduciaries.

These PDP Bill amendments create a clear pathway for CBDC rollout without privacy constraints. It indicates inter-ministerial coordination, ensuring synergy between RBI’s digital currency plans and India’s data economy regulation.

Supreme Court Rulings

Another area requiring careful navigation is India’s constitutional right to privacy, which could theoretically impact areas like CBDC. However, Supreme Court rulings have reinforced the validity of ‘reasonable restrictions’ on privacy for national security, public order, and crime prevention.

As CBDC is a public infrastructure with built-in oversight mechanisms, mandatory KYC protocols, and audit trails, it arguably constitutes a reasonable restriction on privacy. Thus, no likely successful legal challenge can arise against CBDC on constitutional grounds.

Preventing Crypto Conflict

A common area of confusion is whether CBDC legally conflicts with India’s crypto regulation banning private cryptocurrencies through designated legislation. However, CBDC is not a cryptocurrency. It represents central bank-issued digital money, not a decentralized cryptographic token.

Hence, no direct conflict arises between CBDC and crypto regulation. Countries have concurrent policy frameworks regulating crypto assets and CBDCs based on their unique risks and motivations. India can also adopt such a dual approach with no legal impediment.

Anti-Money Laundering Checks

Money laundering risk is heightened with peer-to-peer CBDC transfers instead of intermediary-validated payments, which are common today. Hence, strong upfront KYC is advocated before onboarding any CBDC wallets and monitoring transactions.

India’s existing AML regulations apply equally to CBDC. However, additional guidelines tailored to CBDC’s features can be issued to regulated entities handling CBDC operations via RBI’s financial stability mandate.


RBI’s path to launching CBDC in India is legally secure and facilitated by recent regulatory changes. Privacy and data protection legislation has kept future infrastructure like CBDC in mind. Additionally, Supreme Court rulings reinforce reasonable restrictions to privacy when proportional.

No direct conflict exists between CBDC and cryptocurrency treatment in India, allowing concurrent approaches. This will enable compliant operations and risk monitoring. Overall, the legislative outlook remains positive for India’s phased CBDC project.

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