e-INR: The Mjolnir of RBI against Climate Change

The e-INR, India's Central Bank Digital Currency (CBDC), is more than a digital payment solution; it is a transformative tool designed to reduce the production cost of physical cash, increase accessibility to money, and make management of payment systems easier. The acceptance of e-INR in our daily transactions will also have a significant impact on climate change, which is being discussed in the article. Much like Thor's hammer, Mjolnir, the e-INR wields the power to dismantle inefficiencies, foster sustainable practices, and combat environmental challenges. This article explores how the e-INR can revolutionize green finance, streamline energy usage, incentivize eco-friendly behaviours, and empower policymakers with real-time data. By addressing physical and transition risks associated with climate change, the e-INR emerges as a catalyst for sustainability, ensuring financial inclusion, environmental protection, and economic resilience. However, to realize its full potential, challenges such as energy efficiency, public trust, and equitable infrastructure must be overcome.

In Norse mythology, Thor's hammer, Mjolnir, is not just a weapon; it is a symbol of strength, resilience, and the power to restore balance. With Mjolnir in hand, Thor was able to protect Asgard, defeat giants, and ensure harmony in the cosmos. In much the same way, India's e-INR, the digital rupee introduced by the Reserve Bank of India (RBI), stands as a modern-day equivalent, a tool of immense potential to tackle one of humanity's greatest adversaries: climate change.

Just as Mjolnir could strike down the fiercest of foes with precision and might, the e-INR has the power to dismantle the systemic inefficiencies and environmental impacts of traditional financial systems. Mjolnir could also summon storms, much like how the e-INR can summon revolutionary changes in how we perceive and address environmental challenges. From enabling transparent carbon markets to incentivizing sustainable consumer behaviour, the e-INR wields the capability to transform the financial ecosystem into a driver of sustainability.

Imagine Mjolnir in Thor's hands as the ultimate equalizer against the chaotic forces of frost giants. Similarly, the e-INR is the RBI's weapon to fight the disarray caused by climate change, be it the rising costs of carbon emissions, the inefficiencies of physical cash, or the need for a greener economy. Where Mjolnir smashed through obstacles, the e-INR breaks through barriers like the digital divide, high transaction costs, and the slow pace of green finance implementation.

Just as Thor's hammer had the unique ability to return to its master, the e-INR also comes full circle by not only addressing current challenges but also creating long-term benefits. It builds financial inclusion by bringing digital currency to rural and vulnerable populations, empowers communities with renewable energy trade, and supports governments in developing real-time, data-driven climate policies.

Moreover, Thor's hammer is a symbol of hope and strength, a reminder that even in the face of overwhelming challenges, there is a way to fight back. The e-INR embodies this same spirit for India. It is more than just a digital currency; it is a call to action, a leap toward innovation, and a tool to forge a sustainable future. Like Thor wielding Mjolnir to protect his realm, India can wield the e-INR to safeguard its environment, economy, and future generations from the looming threats of climate change.

CBDC or e-INR - The Weapon

CBDC stands for Central Bank Digital Currency. Just from the name, one can understand that it is a currency, in digital form, and is issued by central banks. This currency is similar to fiat money or money in physical form, issued by the government, and not backed up by gold reserves, but exists solely in electronic form. The e-INR, or Digital Rupee, is India's Central Bank Digital Currency (CBDC) introduced by the Reserve Bank of India (RBI). So, two questions arise in the mind after reading this:

First, how is it different from online payment banks or UPIs?
To answer this let us understand some scenarios, imagine going to sketchers to buy yourself trendy sports shoes, you like one pair of shoes, the salesman takes it to the cashier and now it is time for you to pay the money, you take out your mobile phone, scanned the QR code and received a pop-up "Your banks' server is down please try later." Let's take another example- you purchased an anime merchandise from Japan that costs around 8000 INR, you add it to your cart and proceed to payment options through digital wallets, the wallet shows a transaction fee of 5% for international purchases means now you have to pay 400 rupees extra to the wallet's company. Let's go with one more example, suppose you go to a village, you are thirsty and you forgot your purse, you find a shop, but the shopkeeper says they have a mobile but do not have a bank account, therefore, they cannot receive online money. In all the above scenarios, e-INR can work wonders. e-INR minimizes intermediaries like banks or private companies, reducing transaction costs and technical problems of the intermediaries. The major benefit of CBDC is financial inclusion; e-INR will make digital money available to people without a bank account. It will also ensure highly secure transactions that will minimize the risk of hacking and fraud, and reduce the risk of privacy invasion by fraudulent practices.

The second question that comes to our mind is: how does it differ from cryptocurrency?
Well, the answer is simple: e-INR or CBDCs are centralized, issued, and regulated by central banks, with their value tied to the national currency, ensuring stability, whereas cryptocurrencies, like Bitcoin, are decentralized, privately created, and often operate on public blockchains without government control. Their value is highly volatile and determined by market demand.

The Climate-Change Villain

Flood in Rajasthan, drought in western Uttar Pradesh, snow-less January in Shimla, fifty-two degrees Celsius in April, depleted groundwater in Delhi, warm winters- we all are witnessing climate change with our own eyes, and we cannot deny it as propaganda, as we are ourselves the reason and spectators of this changing environment.

The Task Force on Climate-related Financial Disclosures (TCFD) has divided climate change-related financial risks into two categories - physical and transition risks.

Physical Risks - Physical risks refer to the tangible damage and financial losses caused by climatic hazards, impacting infrastructure, assets, and the economy. These risks are categorized as acute, which are immediate and event-driven (e.g., cyclones, floods, wildfires), or chronic, which involve long-term climate changes (e.g., rising sea levels, global warming). Acute risks can lead to significant losses, such as Australia's $110 billion wildfire damage (2019-2020) or Himachal Pradesh's 8,000 crore loss from heavy rains in 2023. Chronic risks, like Antarctic ice melting at 150 billion tons per year, exacerbate issues like sea-level rise and ocean acidification, causing widespread environmental and economic harm.
Transition Risks - Transition risks emerge when countries make significant changes to achieve lower-carbon goals, involving shifts in technology, legal frameworks, markets, and policies. These changes can pose financial and reputational risks to organizations. Policy and legal risks include the implementation of regulations like carbon pricing and sustainability incentives, which may impact businesses depending on the policy's scope and timing. Legal risks also arise from climate-related litigation against organizations for failing to adapt to climate change or disclose its financial effects. Technology risks relate to the high costs and resource demands of adopting new technologies, which can also displace workers. Reputation risks highlight the potential impact on a company's brand image as consumers assess its contributions to the transition to a low-carbon economy.

How CBDC tackles climate-related financial risks - The Strategy

Now let us come to the main theme of this article, "How is a monetary instrument going to help us with our fight against our arch-nemesis, the CLIMATE CHANGE?"

The e-INR RBI's Mjolnir has the potential to play a significant role in addressing climate change by promoting sustainable practices, reducing environmental impacts, and fostering green economic policies. The following are some of the ways it can help us in mitigating the impact of climate change on our economy.

Reducing the Environmental Cost of Physical Cash: The production, distribution, and disposal of physical currency or paper currency incur a considerable environmental cost. It requires paper (trees), ink, and a significant amount of water as its raw materials. Manufacturing, transporting, and storing cash consumes energy, contributing to greenhouse gas emissions. Worn-out notes must be shredded or incinerated, creating waste and emissions. By replacing a portion of physical cash with the e-INR, India can reduce deforestation and conserve water, cut down the carbon footprint associated with the logistics of cash management, and lower overall waste generated from currency disposal.
Enabling Green Finance: The e-INR can serve as a tool to promote and track green finance initiatives. It can directly allot funds to green finance. Government and financial institutions can channel funds to renewable energy projects, sustainable agriculture, and green infrastructure using e-INR, ensuring transparency and accountability. e-INR can also streamline the issuance and management of green bonds, making it easier to raise funds for climate-friendly projects. Blockchain or centralized ledgers used in e-INR enable real-time tracking of funds, ensuring they are used for their intended environmental purposes.
Supporting Carbon Markets: Efficient carbon markets play a crucial role in reducing greenhouse gas emissions, and the e-INR can enhance their effectiveness. By providing a secure and transparent platform for buying, selling, and settling carbon credits, the e-INR ensures quicker transactions with reduced costs. Additionally, it can facilitate cross-border carbon trade by offering a stable and regulated medium of exchange, simplifying and standardizing international carbon trading. This would not only promote global collaboration in emissions reduction but also encourage investment in sustainable practices, helping countries and businesses meet their climate goals more efficiently.
Incentivizing Sustainable Consumer Behavior: The e-INR could be programmed to incentivize eco-friendly choices through various mechanisms. Consumers could receive cashback or discounts in e-INR when purchasing renewable energy products, electric vehicles, or energy-efficient appliances, encouraging sustainable consumption. Additionally, dynamic taxation could be implemented, where eco-friendly products and services are taxed at a lower rate, while carbon-intensive goods face higher taxes, all facilitated seamlessly through e-INR transactions. For instance, public transport users could earn small e-INR rewards, promoting the use of environmentally friendly transport. Similarly, retailers could offer discounts to customers using reusable bags, further encouraging sustainable practices, all managed through the e-INR payment system.
Revolutionizing Energy Payments: The e-INR can be integrated with smart grids to optimize energy use, offering several benefits for sustainable energy management. Through smart energy payments, consumers could pay for electricity in real-time based on their usage, enabling time-of-use pricing that encourages the consumption of renewable energy during peak production periods. This approach would help balance demand and supply while promoting the use of clean energy. Additionally, decentralized renewable energy systems could be enhanced with the e-INR, allowing communities that generate excess energy from sources like solar to trade it with neighbours. This would foster local green energy ecosystems, encouraging sustainability and reducing reliance on centralized energy grids.
Enhancing Financial Inclusion for Climate Resilience: India's rural and vulnerable populations, who are often the most affected by climate change, can benefit significantly from the e-INR. It can facilitate the direct disbursement of financial aid, allowing subsidies, disaster relief, or funds for climate adaptation programs to reach affected communities quickly and without intermediaries. This direct support ensures faster and more efficient assistance in times of need. Additionally, the e-INR can enable access to green subsidies, providing farmers and small businesses with financial incentives to adopt sustainable practices. This could include support for eco-friendly solutions like solar-powered irrigation systems or organic fertilizers, promoting long-term resilience and sustainability in rural areas.
Reducing Energy Use in Financial Systems: Traditional banking systems, including ATMs, cash logistics, and branch operations, consume large amounts of energy. The e-INR can help mitigate this by streamlining payments, reducing the need for physical infrastructure and cutting operational energy costs. Since it operates entirely digitally, the e-INR promotes a digital-first approach, which requires fewer physical resources, such as paper or coins, and thus has a significantly smaller carbon footprint. This shift towards a completely digital currency system not only enhances efficiency but also contributes to a more sustainable financial ecosystem, reducing the environmental impact associated with traditional banking methods.
Promoting Supply Chain Sustainability: The e-INR, when integrated with blockchain or traceable ledgers, can significantly promote sustainability in business practices. It can encourage green supply chains by providing transparency into the environmental footprint of goods, enabling eco-conscious consumers and businesses to make informed choices and opt for sustainable products. Additionally, businesses that adopt sustainable practices could receive certifications and rewards through the e-INR system, such as lower transaction fees or tax incentives. This approach not only incentivizes companies to adopt greener practices but also creates a transparent system that supports environmentally responsible consumer behavior.
Supporting a Circular Economy: The e-INR can play a key role in fostering a circular economy, where resources are reused to minimize waste. Through recycling rewards, citizens could be incentivized with e-INR for recycling or participating in waste reduction initiatives, encouraging more sustainable behavior. Additionally, companies that adopt circular practices, such as using recycled materials or engaging in sustainable production, could receive subsidies or tax breaks directly in e-INR. This would create a financial incentive for businesses to contribute to resource efficiency, helping to drive a more sustainable and waste-reducing economy.
Empowering Policymakers with Real-Time Data: The digital nature of the e-INR offers valuable insights that can support climate action. By monitoring consumption patterns, the e-INR enables the analysis of spending trends, helping to identify areas with high carbon footprints. This data can then be used to target those sectors for green initiatives, promoting more sustainable practices. Additionally, real-time data from e-INR transactions can be leveraged to customize climate policies, allowing for the design and implementation of tailored measures such as carbon taxes, renewable energy incentives, or fuel subsidies. This data-driven approach ensures that climate policies are more effective and responsive to current consumption patterns.
Enhancing Cross-Border Climate Collaboration: Climate change demands global cooperation, and the e-INR can facilitate international efforts in several ways. First, it can enable efficient climate funds transfers, allowing India to contribute to or receive climate funds from global institutions directly via e-INR, ensuring transparency and reducing delays. Additionally, a CBDC-backed system like the e-INR can support standardized transactions, simplifying collaboration on large-scale environmental projects. This streamlined process would foster more effective and transparent partnerships between countries, international organizations, and businesses, making it easier to allocate resources and fund initiatives aimed at combating climate change.
Educating and Engaging Citizens: The e-INR can incorporate built-in features to promote climate change awareness and encourage sustainable behaviours. Through gamified incentives, citizens could earn e-INR rewards by participating in climate-friendly activities, such as planting trees, reducing energy consumption, or adopting eco-friendly practices. This fun and engaging approach motivates individuals to contribute to environmental sustainability. Additionally, educational campaigns could be integrated into e-INR payment platforms, displaying climate awareness messages or reminders to encourage eco-conscious habits. These features would help raise awareness and foster a culture of sustainability, empowering individuals to make more environmentally responsible choices in their daily lives.

The Obstacles in the War

While the e-INR offers significant potential, several challenges need to be addressed. First, energy efficiency is a concern; if based on blockchain, the system must adopt energy-efficient models to avoid the high power consumption associated with cryptocurrencies. A large-scale move to renewable energy should also be considered to maintain sustainability. Another challenge is the digital divide, as infrastructure must be accessible to rural and underprivileged communities to ensure inclusivity and equitable participation. Implementation costs are also significant, as transitioning to a CBDC system requires substantial investments in technology, infrastructure, and cybersecurity. Additionally, there may be privacy concerns, as the digital nature of the currency raises questions about data security and surveillance. The adaptation of existing financial systems is another challenge, as banks and financial institutions need to integrate the e-INR seamlessly with their current operations. Lastly, public trust could be an issue, as citizens may be hesitant to adopt a digital currency without a clear understanding or confidence in its security and long-term viability.

The e-INR is more than just a digital currency; it is a tool that can transform how India addresses climate change. By reducing the environmental footprint of money, incentivizing green behaviour, enabling efficient carbon trading, and supporting sustainable practices, the e-INR aligns economic activities with the country's climate goals. While challenges exist, with thoughtful design and implementation, the e-INR has the potential to lead India towards a greener and more sustainable future.

Conclusion

The e-INR represents a bold step forward in India's fight against climate change, serving as a modern-day Mjolnir to restore balance to the environment and economy. By reducing the environmental cost of physical cash, facilitating carbon markets, and promoting sustainable consumer and corporate behaviors, the e-INR aligns financial innovation with climate goals. Its integration with smart grids, renewable energy systems, and data-driven policymaking further strengthens its potential as a green financial tool. Despite challenges like the digital divide, privacy concerns, and implementation costs, the e-INR offers a promising pathway to a sustainable future. With careful planning, robust infrastructure, and widespread adoption, the e-INR can become a cornerstone of India's commitment to combating climate change and achieving environmental and economic resilience.

References

International Monetary Fund. (n.d.). Virtual handbook on central bank digital currency (CBDC). Retrieved from https://www.imf.org/en/Topics/fintech/central-bank-digital-currency/virtual-handbook
Ministry of Finance, Modi, N., International Monetary Fund, & Georgieva, K. (2022). CENTRAL BANK DIGITAL CURRENCY (DIGITAL RUPEE). https://static.pib.gov.in/WriteReadData/specificdocs/documents/2022/dec/doc2022121139201.pdf
NGFS. 2018. "NGFS First Progress Report." October 2018. Available at: https://www.ngfs.net/en/first-progress-report
NGFS. 2019a. "NGFS First Comprehensive Report. A Call for Action - Climate Change as a Source of Financial Risk." April 2019. Available at: https://www.ngfs.net/en/first-comprehensive-report-call-action
NGFS. 2019b. "Macroeconomic and Financial Stability: Implications of Climate Change". NGFS Technical Supplement to the First Comprehensive Report." July 2019. Available at: https://www.ngfs.net/en/first-comprehensive-report-call-action
ODI (n.d.). The role of central banks in tackling climate change. Www.Climate-Transparency.org. https://www.climate-transparency.org/wp-content/uploads/2021/08/ODI_role-of-central-banks-in-tackling-climate-change.pdf
Reserve Bank of India Frequently asked questions. (n.d.). https://www.rbi.org.in/Scripts/FAQDisplay.aspx?Id=169
TCFD (Task Force on Climate-related Financial Disclosures). 2017. "The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities Technical Supplement Technical Supplement." TCFD. Available at: https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Technical-Supplement-062917.pdf
Thomä, Jakob, and Hugues Chenet. 2017. "Transition Risks and Market Failure: A Theoretical Discourse on Why Financial Models and Economic Agents May Misprice Risk Related to the Transition to a Low-Carbon Economy." Journal of Sustainable Finance and Investment 7 (1): 82-98. https://doi.org/10.1080/20430795.2016.1204847