On December 1, the Reserve Bank of India (RBI) launched its first retail digital rupee, or e-R, trial. The Central Bank Digital Currency (CBDC), comparable to bitcoin in specific ways, will be available to retail consumers.
There has been a lot of talk about cryptocurrencies, CBDC, and digital currencies. A central bank’s digital currency is the digital equivalent of a country’s fiat currency. In contrast, cryptocurrency is also a digital currency, but it is an alternate means of payment with its encryption algorithms. A CBDC is essentially digital fiat, whereas cryptocurrencies are digital assets that operate on a decentralised network.
What is Digital Rupee?
The Reserve Bank of India has referred to the e-Rupee, as a digital token that stands in place of legal money, as an electronic rupee. It is the same as a fiat currency and may be exchanged one-to-one with the fiat currency.
In contrast to cryptocurrencies, the digital Rupee is issued in the same denominations as physical cash, including paper currency and coins.
Listed below are the three main reasons CBDC is gaining so much attention:
i. In response to the diminishing demand for paper currency, central banks are making efforts to promote the use of electronic currency as a solution to the problem (like Sweden).
ii. Countries or regions that use a substantial amount of physical currency and are interested in making the issuance process more efficient (like Denmark, Germany, Japan or even the US).
iii. RBI’s goal is to meet the public’s demand for digital currencies, as seen in the growing use of private virtual currencies, and to protect themselves from the more negative effects that such currencies can have.
How will Digital Rupee work?
The digital rupee or e-R will be a digital token that will function as a legal tender. It will be issued in the same denominations as paper money and coins and distributed through intermediaries, in this case, banks.
According to the central bank, users can transact using e-R through a digital wallet issued by partner banks and kept on mobile phones and gadgets.
It is possible to conduct digital rupee transactions between person to person (P2P) person to merchants (P2M).
Customers can make payments to businesses by scanning QR codes displayed at merchant locations, precisely as they do for UPI payments. The e-R would have physical cash characteristics such as trust, safety, and settlement finality.In the same way that cash earns interest, this form of money can be converted into other forms of money, such as bank deposits.
The pilot will be launched in four cities, including Mumbai, New Delhi, Bengaluru, and Bhubaneswar, by four banks: State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank.
Four other banks will eventually join this pilot, including Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank, which will expand to other cities like Ahmedabad, Shimla, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Hyderabad.
RBI’s Central Bank Digital Currency (CBDC) promises to make payments more affordable, secure, and convenient.
In addition to reducing the need for cash, the CBDC would provide a regulated alternative to cryptocurrencies on the market.
Transaction costs would be kept low due to the underlying technology. As a result of its interoperability with other payment systems, such as UPI, it would complete the mobile payments ecosystem.
Expected impacts of Digital Rupee in future
According to industry experts, India’s CBDC strategy is keeping with the country’s recent global digitalisation ambitions. India is one of the few countries to have established its own CBDC.
Many countries, including China, Ghana, Jamaica, and certain European countries, are investigating CBDC products. Some companies have even developed their digital currencies. Nine countries have fully operational CBDCs. The Caribbean is home to eight of the nine countries. The Sand Dollar of the Bahamas was the world’s first CBDC, launched in 2019.
The digital rupee or e-R will improve the security, traceability, and accountability of money flow in the world’s fifth-largest economy. Instead of a distributed ledger, the RBI will govern the e-R, giving the digital currency legal protection and stability. Digital assets can be tracked and are guaranteed by a sovereign institution, which means it should be difficult to commit fraud against UPI users since the money is untraceable once it leaves a bank.
The retail digital money, which is available as of December 1, will be delivered in two stages. The chosen banks will be issued by the central bank initially. Banks will continue to deliver currency into the hands of customers.
The launch of the Digital Rupee in India is expected to increase the efficiency, transparency, systemic resilience, and governance of our currency management system.
Conclusion
Digital currency will make it possible to conduct transactions without opening a bank account. Once the digital rupee is launched, the government can view all transactions occurring within authorised networks, assist real-time account settlements, and preserve ledgers.
CBDC-backed currencies are a natural progression in the evolution of digital currencies. It removes various inefficiencies that hamper cryptocurrencies by giving stability and confidence with the backing of the RBI.
CBDC will be another significant step toward implementing blockchain for financial services, aligning India with the rest of the globe, which is fast moving toward accepting digital currencies.
FAQs
1. When was Digital Rupee launched?
Ans: Digital Rupee was launched on December 1, 2022.
2. What is Digital Rupee?
Ans: Digital Rupee or e-Rupee is a digital token that stands in place of legal money, as an electronic rupee.
3. What is the full form of CBDC?
Ans: The full form of CBDC is Central Bank Digital Currency.
4. What is fiat currency?
Ans: Currency backed by no commodity such as gold or silver is called fiat money. Governments typically designate it as legal tender when they issue it.
5. Which are the 4 cities in which the pilot will be launched?
Ans: The pilot will be launched in four cities, including Mumbai, New Delhi, Bengaluru, and Bhubaneswar.
6. Which banks will be launching the pilot in the 4 cities?
Ans: The pilot will be launched by four banks State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank.
