Entering into a new dawn with digital currency | The Financial Express

Entering into a new dawn with digital currency

A digital currency would bear the same legitimacy as a currency note issued by a bank.

Entering into a new dawn with digital currency
This transition is expected to make money transfers smooth and efficient.

By Manan Dixit, Founder, Fidypay

A non-tangible currency note, right in our pockets. This is no longer a future depicted in a science-fiction movie. The recent announcement by the Reserve Bank of India (RBI) makes it a reality.

Think of it! We are no longer talking about the high-risk or high returns scenarios promised by the burgeoning cryptocurrency sector. Instead, a digital currency would bear the same legitimacy as a currency note issued by a bank. The only difference, it can’t be physically carried in our wallets.

In a new pilot, the RBI would is set to test the digital currency in the “wholesale” segment. And this transition is expected to make money transfers smooth and efficient. In a PDF note, the RBI observed “The use case for this pilot is the settlement of secondary market transactions in government securities. The use of the digital currency-wholesale segment is expected to make the inter-bank market more efficient.”

Nine banks across India have been roped in to be part of this pilot. The 9 banks include HSBC, State Bank of India, IDFC First bank, Bank of Baroda, YES Bank, Union Bank of India, Kotak Mahindra Bank, HDFC Bank, and ICICI Bank. Eventually, the RBI intends to pilot the digital currency in other segments as well such as retail banking.

Understanding Digital Currency?

Simply put, the Digital currency carries the same legitimacy as that of a banknote, without being tangible like paper currency. This electronic makeover of the currency note is being piloted with the intention of making payments more cost-effective, quick and easy. Digital transactions are not only expected to be seamless but also save transaction costs for the users.

Furthermore, the digital currency can be easily converted to physical currency, at the exact value. Unlike UPI transactions, the digital currency covers the unbanked section as well. Users who may not have a bank account may still transact with digital currency.

For users who wish to leverage the benefits of a digital currency but are on the fence about cryptocurrency, the digital currency extends a plausible alternative. Unlike crypto, the digital currency has a legal status and is not decentralized. As per RBI, digital currency transactions would appear as a liability on the balance sheet of the central bank. Essentially, this is going to be an addition to the existing ways of transacting money.

Myriad benefits of the Digital Currency

From being easy and efficient to inclusive, the benefits of the Digital Currency are plenty. RBI expects the digital currency to bolster India’s digital economy and rightly so since it is going to enhance financial inclusion in the country. Even the unbanked section of India’s population can transact in digital currency. This is a significant step, given the fact that India is amongst the top 7 countries that are home to half of the 1.4 billion unbanked individuals across the globe.

Furthermore, it is a plausible solution to the cash woes faced by the authorities and users alike. Physical cash is difficult to manage. It bears the costs of printing, mobility, and maintenance. But a digital currency can neither be lost nor damaged. In addition to offering a greener alternative to paper currency, it also guards users against the risks of crypto.

The New Dawn!

Digital transactions are certainly the future. And with the launch of the Digital currency, India has joined the ranks with some of its global counterparts in ushering the world towards a robust digital framework. Be it Russia, China, the Bahamas, Nigeria, or more, different countries across the globe either plan to or have already launched or completed the initial trial run of their digital currencies.

The pilot by the Reserve Bank of India has been a long-time coming. Indian users will be able to enjoy the benefits of digital currency, notwithstanding the risks. The Digital currency, furthermore, will not only put us on par with our global counterparts but will also resolve the problems associated with physical currencies and make cross-border transactions simple and efficient.

Simplifying the cash woes and opening it up for the unbanked section is certainly a step in the right direction. With mainstreaming of the digital currency, India’s economy and the digital infrastructure stand to be the key beneficiaries.

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First published on: 01-12-2022 at 17:41 IST