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Digital Currency: Name, Meaning, Features & Advantages

By Mayashree Acharya

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Updated on: Jun 6th, 2024

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5 min read

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.  

What is digital currency and how does it work?

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.

Features of digital rupee

The features of Digital Rupee are:

  • It is a sovereign currency that the central banks issue with respect to their monetary policy
  • This digital currency will be accepted as a legal tender, a medium of payment and a safe store of value for government agencies, businesses and citizens
  • It is a fungible legal tender for which individuals will not need a bank account to store

Advantages of digital currency in India

Rupee digital currency has a significant number of benefits over its physical counterpart. They are as follows:

  • CBDC is digital in nature; thus, there is no way to damage, burn or tear it physically
  • Unlike physical notes, there is no chance of an individual losing them  
  • They have a longer lifespan as compared to physical forms of currency
  • As CBDC is under the authority of the Central Government, it is less prone to volatility as compared to cryptocurrencies like Bitcoin, Ethereum, etc. 
  • They will help the Reserve Bank of India reduce its expenditure on issuing money and transactions
  • This digital currency will also negate the need for interbank settlement
  • They will allow hassle-free international transactions without the need for any intermediaries
  • Paired with smart contracts, CDBCs will simplify the tax collection process
  • Transactions using Digital Rupee are traceable and will assist retail users and MSMEs in proving their creditworthiness

Digital currency vs cryptocurrency

These are the differences between digital currency and cryptocurrency:

Parameters Digital CurrencyCryptocurrency
OverviewIt is fiat currency in electronic form that can be used in contactless paymentsIt is a store of value that is present on a blockchain 
RegulationsThis form of currency is under the regulation of the Reserve Bank of IndiaNo financial institution can regulate cryptocurrencies, and it is completely decentralised
Volatility And AcceptabilityDigital currencies are stable and thus are accepted worldwideCryptocurrencies are highly volatile in nature and are not accepted globally
Availability Of Transaction DataThe transaction data is only available to the bank, sender and receiverMost cryptocurrencies have a decentralised ledger system; that is, all the platform’s transactions are publicly viewable
EncryptionTo 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

Indian digital currency launch date

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. 

Digital rupee blockchain

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. 

Frequently Asked Questions

Which banks have participated in RBI’s Digital Rupee wholesale pilot project?

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. 

What are the types of CDBC that the RBI has issued?

The RBI has issued two types of CDBC, namely – CBDC-R for retail and general transactions and CBDC-W for wholesale purposes.  

What is the aim of CDBC?

The aim of CDBC is to complement the current forms of finance and provide a new form of payment system to users. 

What are the risks associated with CDBC?

The risks associated with CDBC are financial stability, monetary policy, cost and availability of credit, etc. 

Can I invest in the CBDC? 

No, you cannot invest in CBDC.  It does not offer any kind of investment opportunity like in some of the cryptocurrencies. 

About the Author

I am an advocate by profession and have a keen interest in writing. I write articles in various categories, from legal, business, personal finance, and investments to government schemes. I put words in a simplified manner and write easy-to-understand articles. Read more

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Quick Summary

The Indian Government and RBI have launched Digital Rupee, a sovereign currency. Digital currency is electronic money usable in contactless transactions. Features include legal tender status, no physical wear, and low volatility. Digital currency benefits over physical notes include longevity and reduced expenditure. It simplifies tax collection, enabling traceable and hassle-free transactions. The Digital Rupee pilot project started on 1 November 2022. It offers advantages over cryptocurrencies in terms of stability and government regulation.

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