Digital Rupee- India's Upcoming CBDC Prototype

This year, a sizzling announcement came with the Union Budget for FY 2022-23, that is, soon RBI will launch an Indian Digital currency. With advanced technologies and development in every field, it might be the right time to introduce the digital rupee. The main reason behind this is to boost the digital economy of the country, by utilizing blockchain and various other technologies.

Now, when we look in-depth, the Central banks of several countries have already adopted a national currency mechanism, among which China was the very first to issue this major change in its economy.

And for India, this seems to be the right time to enroll in Central Bank Digital Currency (CBDC) operation by FY2023.

With the digital rupee launch, the relevant amendment will be made to the RBI Act, 1934 included in the Financial Bill, 2022.

We're well familiar with the increasing interest of people in cryptocurrencies. Looking at which, the Reserve Bank of India (RBI) has been discussing all the details of the central bank's digital currency and some private cryptocurrencies. And that's what we are discussing in this article. But before that, we need to understand what is digital currency. So, let's get started!

What is digital currency?

Before we move forward, let's understand what digital currency is.

CBDC is a legal tender that is issued by the central bank as an electronic form of money. And being quite similar to fiat currency, the only difference between this and traditional cash or fiat currency is that CBDC is an electronic form of money (digital).

In addition to this, the government of India is considering two forms of CBDC adoption, which are Wholesale CBDC and Retail CBDC.

And those who think the digital rupee is similar to cryptocurrencies, these two are totally different. As cryptocurrency allows the users to remain anonymous, the digital currency issued by RBI will have the backing of its users.

In other words, the digital rupee is similar to the current banknotes but as being an electronic form of money, it cannot be converted into cash from any bank or even an automated teller machine. Among all those countries which have adopted this economic advancement, China is the one that implemented changes in financial systems by formulating a set of global rules for the Central Bank Digital Currencies.

Advantages and risks of CBCD

In the words of Sankar in the webinar, the requirement for interbank settlement would disappear if CBCD got transacted through UPI like Payrup, instead of the bank balance as cash is given.

As payments made by Central Bank Digital Currencies will be final and minimize the settlement risks in the financial system of the country.

Additionally, the transactions of CBCD will be in a cost-effective way, where time zones won't play any obstacle in currency settlement. Also, it will save the cost of printing, storing, transporting, and distributing cash.

But, with these advantages, the Digital rupees will surely have some risks as well. And according to various surveys, a large portion of Indians prefer cash payments, especially for small-value transactions.

Conclusion

There is no doubt that the digital rupee will be a big game-changer for the Indian economy. As it is expected to stimulate efficient and less expensive currency issuing and circulating. This electronic form of money brings up new parkways for innovation, economic robustness, and monetary efficiency. This is perceived to be more efficient, transparent, secure, and cheap than physical rupees. And if we implement this, India will join the count of all those countries that have already implemented this digital legal tender system.

However, the RBI won't be rushing into things and the regulation of CBCD will only be implemented when all the aspects have been taken care of.

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