Central Bank Digital Currencies (CBDCs) could turn out to be a more energy-efficient currency option than cryptocurrencies or other payment options such as credit cards and debit cards, the Reserve Bank of India (RBI) said in its latest report on currency and finance.

A CBDC is a type of digital currency issued by a country’s central bank and is equivalent to fiat currency.

“Central banks may issue CBDCs based on energy-efficient algorithm-driven processes as against mining by numerous agents working under competitive reward structures” the RBI said ” This can help CBDCs have higher transaction throughput compared to crypto currencies for the same energy input”.

If designed with environmental, social, and governance (ESG) objectives in mind, a CBDC could also be more environment friendly depending on its underlying technological stack.

Estimates indicate that non-Proof of Work permissioned networks – what CBDCs are likely to be – are significantly more energy efficient than current credit card processing centres, in part because the latter involve energy-inefficient legacy systems.

Payments through CBDCs would be instantaneous and final, and its reduced reliance on settlement infrastructure could cut down energy consumption, RBI said. Further, CBDCs help curb emissions by nullifying operations such as printing, storage, transportation, and replacement of physical currency

India’s CBDC is in the pilot stage for both wholesale and retail uses, and is expected to be more environment friendly compared with cash. Though instituting a CBDC may entail significant fixed infrastructure costs at the beginning, the subsequent marginal operating costs are estimated to be very low.Higher use of CBDCs by the general public can help lower the carbon footprint through a less-cash economy, the central bank said. In the Fintech Benchmarks 2023 survey by centralbanking.com, all 29 institutions polled said that CBDC is a greener option compared with cash.

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