Research Methodology

Viability of Digital Currency in India

GROUP-8

1. Akshita Singh – 21020841100

2. Akshay Agarwal – 21020841099

3. Ashish Prasad – 21020841108

4. Jayesh Damor – 21020841109

5. Shreyansh Sharma – 21020841138

 Viability of Digital Currency in India

Introduction

Money is central to a country’s market economy, and it is the authority of the central bank of that
country to provide this. The growing popularity of digital currencies (or cryptocurrency) such as
Bitcoin over the last decade has made most central banks look seriously at launching a digital
currency controlled by them that can address the shortcomings of digital currencies while
hastening the shift towards a cashless society. The digitization of fiat currency stems from the
advent of electronic payment and interbank IT systems, allowing commercial banks to more
efficiently and independently generate the credit flows that expand the broad money supply.

Research Question

Will India be able to shift towards Central Bank Digital Currency?

Research Objectives

● Distinguishing the digitalization of fiat currency from digital currency

● Exploring the cost factor related to creating and sustaining digital currency
● Security concerns associated with CBDC

● Exploring the IT infrastructure needed for implementation

Introduction to review of literature

We have performed detailed analyses of 5 research papers, all having a common objective of
assessing the future of digital currency in India. We summarized and identified a few gaps in the
literature review.

1
Title 1: Digital Currency and Its Implications for India

Author: Dr. Manpreet Kaur Associate Professor - Bharati Vidyapeeth Institute of Management
and Research, New Delhi, India

Year Of Publication: 2020

Publishing Platform: The Management Accountant Journal (2020)

Research Methodology: Descriptive and analytical study

Major Findings and Interpretation:

The demonetization of currency in 2016 by the Modi government revolutionized the movement
towards using digital payment methods in India. Though it was a strenuous decision for India,
where 90% of the transactions are in cash, people quickly adopted the digital mode of payments.

Blockchain is the future of the finance industry which will revolutionize financial dealings in the
times to come. Digital currency will do for financial transactions what an email does for
communication. As a result, it is expected that it will bypass the centralized financial
infrastructure in its entirety.

SWOT Analysis of Digital Currency in India

Strength – Increase the speed and efficiency of financial transactions.

Weakness – Issues related to online security and consumer privacy

Opportunities – Supported by fintech companies

Threats – Disruption of existing models and systems, Lack of IT infrastructure

Conclusion and Discussion:

Digital currencies are an integral part of the fintech revolution, impacting many areas, including
payment & settlement systems and services. For countries like India, digital currencies can be
introduced initially for retail transactions within accessible security features and can be used later
for investment transactions. Central banks can examine the viability of using digital currency in
combination with existing systems or providers. It can be said in conclusion that the blockchain
will rule economies all over the world in years to come and its adoption is necessitated either by
compulsion or choice.

Title 2: A Central Bank Digital Currency for India | Proceeding with Cautious
Optimism

Authors:

● Shehnaz Ahmed – Senior Resident Fellow and Lead (Fintech) at the Vidhi Centre for
Legal Policy
● Krittika Chvaly – Ex Research Fellow at the Vidhi Centre for Legal Policy

Year Of Publication: 2021

Publishing Platform: Vidhi Centre for Legal Policy

Research Methodology: The research is primarily based on a Descriptive Study.

Major Findings and Interpretation:

In the initial phase, the authors in this paper have thoroughly explained what CBDC is and its
benefits and implications. They have focused on the various governments which are in the
process of launching CBDC infrastructure. Then authors have deconstructed CBDC, i.e., how a
CBDC infrastructure is designed and what are its different forms.

The authors have also briefly talked about Crypto Currencies and how they are different from
CBDC.
Then the authors focused on some of the surveys done in different countries like Russia, the UK,
China, to name a few where a proper survey was done to assess the viability of CBDC in these
areas.

And then finally Author took the topic of the Payment Landscape in India. A brief history about
RBI and the role it played in the circulation of currency in India. The paper also talked about
RBI's role in setting up National Payment Corporation of India (NPCI), the very operator which
transformed the payment landscape in India by introducing UPI and IMPS. The authors also
considered the fact that in India use of physical currency is still very large in play with
compound growth of more than 10%.

Conclusion and Discussion:

Though India has huge potential, being the fastest-growing country in terms of internet users and
if we look at past trends Indians are expected to perform over 100 million UPI transactions per
day Despite such staggering figures still paper-based payments continued to have a considerable
share of 61.4 % in India. So, there’s a lot to work in India in terms of spreading the digital
infrastructure as almost around 40-50% of the Indian population is unaware of digital payments.
So, all and all it’s a long road ahead but surely a promising and fruitful journey.

Title 3: Central Bank Digital Currency (CBDC) Can it Replace Notes and
Coins in India

Author: Prof. J. Meena Kumari (Professor and Head, Research and Development, ISME,
Bengaluru)

Year of publication: 2021

Publishing Platform: Shanlax International Journal of Management

Research Methodology: Descriptive study

Major Findings and Interpretation:

A currency provides people with the utilities of a payment medium, storage purpose, and acts as
an accounting unit. CDBC (Central Bank Digital Currency) has to perform these functions to be
widely accepted by the people and have their confidence. RBI has recently shown an initiative to
introduce its CDBC to counter the limiting factor of monetary sovereignty by cryptocurrencies.
The Indian population has significantly reduced its cash use after demonetization and the advent
of various online payment services.

The significant volume demand for a currency in India and its proper access through connectivity
and ease of usage can be the challenges that CDBC’s introduction faces. CBDC can face the
risks of cyber threats, and operational failures require proper planning, supply, and security
through Currency Chests (presently used for supply of cash and coins).

Central banks of various countries worry about the limited monetary sovereignty of
cryptocurrencies and their illegal uses and, therefore, plan to introduce their digital currencies.
India requires CDBC that can be digital and physical like tokens (plastic cards) to address
different people's needs. CDBC can be traced for any illegal activities and can also be maintained
in ledgers digitally.

India is moving towards complete financial inclusion, but a considerable portion of the
population doesn’t trust the banking system and refrains from using it.

Conclusion and Discussion:

CDBC can help India make it more financially inclusive by reducing the role played by banks. It
can also help the central bank to regulate monetary sovereignty and limit illegal use. Even after
CBDC’s introduction, we can expect longer-term cash and coins use due to their large volume
and trust.
Title 4: Digital currencies and the future of the monetary system

Author: Agustín Carstens (General Manager, Bank for International Settlements)

Year of publication: January 2021

Publishing Platform: Hoover Institution policy seminar, Basel

Research Methodology: The paper is descriptive in nature and it is based on secondary data
collected from Bank for International Settlements (BIS), research papers, and journals.

Major Findings and Interpretation:

The economy is in the middle of a technological revolution brought by a combination of new

digital technologies and greater online activities. This technological revolution has also reached
the financial system and even the design of money itself. Hence digital currencies are needed,
and central banks should be the ones to issue them.

Central banks are proactively researching a new form of money and how it could improve retail
payments in the digital area, in line with central bank mandates. Around the world, they have
stepped up their central bank digital currency (CBDC) design efforts.

There are two types of CBDCs – one is Wholesale CBDC for payments between financial
institutions and large commercial parties and the other is Retail CBDC which could be used in
daily transactions by households and businesses.

If CBDCs are properly designed and widely adopted, they could become a complementary
means of payment that addresses specific use cases and market failures. They could act as a
catalyst for continued innovation and competition in payments, finance, and commerce at large.

Conclusion and Discussion:

• Developing CBDC comes with a host of technological, legal, and economic issues that warrant
careful examination before issuance.
• It is up to individual jurisdictions to decide whether they issue CBDCs or not. But wherever
issued, CBDCs will be an additional payment option that coexists with private sector electronic
payment systems and cash.

•Issues such as digital dollarization and the potential role of CBDCs in enhancing cross-border
payments need to be addressed in multilateral forums.

Title 5: Central Bank Digital Currency – Is This the Future of Money

Author: Shri T Rabi Sankar, Deputy Governor, Reserve Bank of India

Year of publication: 2021

Publishing Platform: Research published in Reserve Bank of India

Methodology: Descriptive study from secondary data

Major Findings and Interpretation:

The case study explains the barter system, which was used as an exchange of goods with other
goods. But the major problem was that it was hard to equate the quantity of two different goods
for exchange. So, we move towards using gold and silver coins which have an intrinsic value.

Money has taken the shape of commodities (which have intrinsic value) or debt instruments.
Money is usually issued by a sovereign. There are private issuers also, but they are not as stable.

A CBDC is a digital form of legal money issued by a central bank. It functions similarly as fiat
money and can be exchanged for fiat money in a one-to-one. Only its form is different

CBDC is different from digital or virtual currency as VCs don't claim any commodities.

Over the years, digital payments in India have grown by 50% CAGR. A digital currency reduces
the burden of printing and transporting cash. A reduction in banking transaction costs will
increase the popularity of the CBDC.
However, CBDC has similar features to the private digital currency. So if the popularity of the
private currencies increases, then there will be no need for CBDC. There are chances that CBDC
can face cyber-attacks.

RBI has developed a proof of concept, and they are working on exploring the pros and cons of
CBDCs.

Conclusion and Discussion:

CBDCs are expected to be a part of any central bank's arsenal in the future. Setting this up will
require careful calibration and a nuanced execution strategy. Stakeholder consultations and
considerations on the drawing board are critical. The relevance of technical difficulties cannot be
overstated. Every idea, as the saying goes, will have to wait its turn. CBDCs may be coming into
their own.

Gaps Identified:

● Further studies should be conducted to know the views of Central Banks on digital
currency.
● A cross-border analysis of CBDC’s monetary implications should be conducted.
● Analysis can be done to know whether the population is ready for the adoption of
digital currency.

● A study of the effects of CBDC on the banking system has been conducted but its
effect on other sectors is still unknown.

Research Methodology

Research Design:

The research design for our research describes the theoretical framework, the sampling methods
followed and the research methods followed to determine if India will be able to shift towards
the Central Bank Digital Currency issued by the Reserve Bank of India. This is a qualitative
study to determine the awareness and readiness by people to adopt CDBC in circulation if issued
by RBI. The study is exploratory research involving public sentiments towards digital currency
and their awareness of it.

Theoretical Framework:

The purpose for the research will be covered by the questionnaire responses for the study
and the data analysis to determine the readiness of respondents to adopt CDBC and to
determine the reasons for their concerns.

Conceptual Framework:

The study also tries to determine the readiness depending on income and the readiness for
digital payments as people adopting digital payment services are more likely to adopt
digital currency for making transactions. The study also tries to determine the
respondents’ concerns regarding the security, anonymity and infrastructure provided for
the circulation and transactions.

Data Collection:

The questionnaire was used as the major data collecting instrument in the study since it can be
delivered to a wide population and is easy to conduct using internet platforms. It is also useful
since it is comparatively faster and easier to administer to a big population, as well as time and
cost efficient for academic research. The research survey was formed on a google form and
floated to gather responses conveniently in a large number.

Measurement of Scales:

A questionnaire is a series of questions that are provided to respondents in order for them to
reply. The Likert-scale was used to determine respondents' likeliness for the amounts they prefer
to do digital payments, and their frequency of digital payments.
Sample Design

So, we'll be using Convenience Sampling as the sampling technique for this research. Since
there is no such entry parameter for a respondent in this research, the pool to cover is vast. So
we’ll be employing convenience sampling techniques because it is incredibly prompt,
uncomplicated, and economical. Usually, convenience sampling is preferred in situations where
additional inputs are not necessary for the principal research. There are no criteria required to be
a part of this sample. Thus, it becomes incredibly simplified to include elements in this sample.
All components of the population are eligible and dependent on the researcher’s proximity to get
involved in the sample.

Sample Size

A sample size of 80 of future potential users of CBDC has been collected and their views have
been formulated in the form of objectives and Likert scales.

Data Analysis – Proposed

The data analysis performed through statistical analysis methods helped us to determine different
patterns evident from the responses. The statistical methods involved for the data analysis are
descriptive analysis and factor analysis. The descriptive analysis described the patterns in the
question responses and the spread of the responses providing the structure of the responses.

Scope of the Research

The aim of this study is to report on the viability of digital currency in India. The scope of the
study is limited to observing around 80 volunteers between the ages of 15 and 60. We will
circulate a questionnaire in a google form which would be sent to their Email-ID. This
observation period will last for a maximum of one month and will end when either 80 volunteers
have been observed or 1 month has passed. Each volunteer in the study will be asked to complete
a short questionnaire in order to evaluate their opinions.
Limitations of the Research

Following are the limitations we came across during our research:

● The research is limited to India only. Other countries are not involved in our research.
● Less awareness among the surveyor about the research topic. So, the research doesn’t
cover a holistic view of citizens.
● The research is limited to Digital currency only, it doesn’t cover cryptocurrency.
● The research covers only individual citizens and not the different institutions or
industries.
● Limited secondary data available as digital currency is a new concept.
● It only covers the currency part and not the transaction part.

Data Analysis
The age histogram depicts the highest frequencies in the interval of 18-30, because we performed
convenience sampling and the respondents were mostly the students of a business school.

The gender histogram depicts that the maximum respondents are from the Male gender.
The profession histogram depicts that maximum respondent are students because we performed
convenience sampling and the respondents were mostly the students of a business school.

The monthly income for most of the respondents was less than 25000 rupees monthly because
most of the respondents were students.
Most of the respondents belong to urban and semi urban areas and do adopt digital payment and
are more likely to be aware or/and adopt CDBC.

Cross Tabulations
Cross tabulations are a quantitative research approach for assessing the association between two
or more variables while doing survey analysis. The cross tabs given above, depict the association
between two variables among the variables such as age, income, location, profession, etc. This
gives a better representation of the data provided by the respondents.
This histogram depicts that the respondents feel mostly neutral about the anonymity provided by
digital currency.

The histogram depicts that the respondents feel digital currency will provide security to a greater
extent.
The histogram depicts that the respondents will somewhat adopt the digital currency as their
means of transactions.

The histogram depicts that the respondents are somewhat aware of the digital currency.
The histogram depicts that the respondents prefer using digital currency for purchasing
transactions.

The histogram depicts that the respondents feel that digital currency should be regulated by the
government.
 Findings

The data analysis helped to determine the following findings from the survey filled by our
respondents:
● The respondents were aware about the CDBC to be issued by RBI.
● Most of the respondents were unaware about the anonymity feature provided by the
CDBC infrastructure and thus responded neutral on the Likert scale.
● The responses given by respondents depicts that they preferred doing two types of
transactions: Bill payments and purchasing.
● According to the responses given by the respondents, the CDBC infrastructure would be
highly secure.
● Since the respondents were mostly aware about CDBC, they were more likely to adopt
CDBC as their means of transaction.

At 3.5 billion transactions in August, UPI clocks 120% surge in volume. So, this is a very
positive sign on future potential of CBDC in India. Also studies have found that Digital
payments in India are set to account for 71.7% of the total payments volume by 2025, leaving
cash and cheques at 28.3%. So eventually Indian population is moving towards online mode
hence a major plus point for Indian economy.

Conclusion and Discussion

CBDC has the potential to bring major benefits, including less reliance on cash, increased
seigniorage due to lower transaction costs, and lower settlement risk. CBDC might pave the way
for a more robust, efficient, reliable, regulated, and legal tender-based payment method. There
are hazards, to be sure, but they must be carefully weighed against the possible advantages. It
would be the RBI's aim, as we move forward toward India's CBDC, to take the required steps to
reaffirm India's leading position in payment systems. CBDCs are expected to be in every central
bank's arsenal in the future. This will need careful calibration and a sophisticated strategy to
deployment. Considerations for the drawing board and stakeholder interactions are essential.
Technological problems are also significant. Every idea, as they say, must wait until its time.
Perhaps the time has come for CBDCs.

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