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The Indian Government and the Reserve Bank of India have always been in favour of digital payments. They have supported the development of online payment platforms and also their widespread implementation. Now, the Government and RBI have taken a step further into the world of digital finance by launching digital currency. A Digital Rupee or Central Bank Digital Currency (CBDC) is a sovereign currency issued by central bank, Reserve Bank of India.
This is a major leap towards the digitisation of the Indian Rupee. To find out what is digital rupee, read the article below.
Digital currency is an electronic form of money that anyone can use in contactless transactions. Nirmala Sitharaman, the Union Finance Minister, announced the launch of Central Bank Digital Currency (CBDC) in the 2022 Union Budget speech.
She also stated the release of this new form of currency would help boost the digital economy and also make the currency management system cheaper and more efficient.
According to RBI, the CBDC will be a sovereign currency available in a digital form. Just like normal currency issued by the central bank, CBDC will also appear as a liability on the balance sheet of the central bank.
To put it simply, CBDC is a digital form of the Indian Rupee that you can exchange one-on-one with the fiat currency. Thus, they can be used for the consumer to consumer, consumer-to-business and business-to-business transactions with ease. Now that you know what is digital currency, it’s time to take a look at its features.
The features of Digital Rupee are:
Rupee digital currency has a significant number of benefits over its physical counterpart. They are as follows:
These are the differences between digital currency and cryptocurrency:
|Overview||It is fiat currency in electronic form that can be used in contactless payments||It is a store of value that is present on a blockchain|
|Regulations||This form of currency is under the regulation of the Reserve Bank of India||No financial institution can regulate cryptocurrencies, and it is completely decentralised|
|Volatility And Acceptability||Digital currencies are stable and thus are accepted worldwide||Cryptocurrencies are highly volatile in nature and are not accepted globally|
|Availability Of Transaction Data||The transaction data is only available to the bank, sender and receiver||Most cryptocurrencies have a decentralised ledger system; that is, all the platform’s transactions are publicly viewable|
|Encryption||To securely store digital currencies, an individual needs a strong password, biometric authentication, etc.||As cryptocurrencies are blockchain-based, they are secured by a high level of encryption|
According to the Reserve Bank of India, the pilot launch for Digital Rupee was initiated on 1 November 2022 for specific use cases. Furthermore, the pilot project for the Wholesale segment (eâ1-W) of Digital Rupee India was launched on 2 November 2022.
When it comes to the Digital Rupee blockchain, the Reserve Bank of India has not made any formal announcement. It has not declared whether CDBC will have a distributed ledger or a controlled database. However, RBI has expressed its desire to be flexible in order to accommodate evolving technologies.
Although the RBI is still yet to release more information on its CBDC, the future of digital currencies in India is promising. Innovations like these will surely help in boosting the digital economy.
IDFC First Bank, HSBC, HDFC Bank, ICICI Bank, Kotak Mahindra bank, Bank of Baroda, Yes Bank, Union Bank of India and the State Bank of India have participated in RBI’s Digital Rupee wholesale pilot project.
The RBI has issued two types of CDBC, namely – CBDC-R for retail and general transactions and CBDC-W for wholesale purposes.
The aim of CDBC is to complement the current forms of finance and provide a new form of payment system to users.
The risks associated with CDBC are financial stability, monetary policy, cost and availability of credit, etc.
No, you cannot invest in CBDC. It does not offer any kind of investment opportunity like in some of the cryptocurrencies.