What is the ‘REDI’ framework for CBDC adoption proposed by the IMF?
India is among the countries actively working to integrate Central Bank Digital Currencies (CBDCs) into their financial systems. Over the weekend, the International Monetary Fund (IMF) proposed a framework aimed at facilitating the widespread adoption of CBDCs, known as REDI, which stands for Regulation, Education, Design and Deployment, and Incentives. In its latest report, the IMF indicated that many jurisdictions are likely to see CBDCs as crucial policy instruments for improving financial inclusion in the near future.
The IMF has noticed that a new payment instrument such as a CBDC may face multiple challenges when it comes to adoption, especially since its performance is currently only being tested by a handful of countries.
Understanding REDI
The IMF report notes that the CBDC ecosystem needs to be regulated to ensure the safety of finance. The IMF has mentioned a margin of participation for intermediaries to ensure oversight by financial regulators of the countries experimenting with CBDCs. The report also suggests that CBDCs should be given legal tender status alongside fiat currencies.
Following insights from global financial experts, the report highlights that increasing awareness and understanding of CBDCs is essential to driving their adoption. It emphasizes the importance of communicating the benefits of CBDCs, working with industry partners to expand reach, and leveraging media channels to educate the public. These efforts are identified as key catalysts for driving the widespread adoption of CBDCs.
Regarding the design and deployment of CBDCs, the IMF recommends that governments develop comprehensive strategies for onboarding users and lenders, including incentives to encourage participation. These incentives can take both monetary and non-monetary forms, aimed at improving engagement with CBDCs.
“Integrating non-bank entities could significantly expand the reach and accessibility of CBDC; however, they could also introduce complexities into the regulatory framework. Effectively managing these challenges will require comprehensive regulatory adjustments to align non-bank standards with the stringent security and operational requirements of existing financial institutions and the CBDC framework, to ensure stability and safety,” the report added.
Current Global Landscape of CBDCs
A recent report from the US think tank Atlantic Council indicates that 134 countries, representing 98 percent of the global economy, are actively exploring digital versions of their currencies. The report highlights that all G20 countries are now exploring CBDCs, with a total of 44 countries currently testing these initiatives.
China, Russia, Nigeria and India are among the countries actively conducting advanced trials of Central Bank Digital Currencies (CBDCs) in both retail and wholesale markets.
About India’s eRupee CBDC
The retail pilot of the eRupee CBDC was launched in December 2022, with an aim to facilitate peer-to-peer transactions. Recently, RBI Governor Shaktikanta Das announced that the eRupee has already attracted five million users during the retail pilot phase.
Before the IMF report, India’s central bank had begun incentivizing CBDC users to participate in the trials. In January 2024, several banks including HDFC, Kotak Mahindra Bank, Axis Bank, Canara Bank and IDFC First Bank began depositing funds related to employee benefit plans directly into employees’ CBDC wallets instead of their salary accounts. This initiative was intended to boost the adoption and usage of the eRupee.
According to Das, the eRupee is being positioned as a means to internationalise India’s fiat currency. The RBI is actively working to ensure that the eRupee is compatible with UPI QR codes, can process offline transactions and offers users financial privacy.
