With the advent of decentralised digital currency, the Reserve Bank of India (RBI) has been engaged in launching its digital currency to keep up with the changing financial system, where the digital form of money got acceptance and popularity in the form of cryptocurrency all over the world. The RBI was more interested in having a centralised system in place for digital currency to avoid unscrupulous players cheating and committing crimes through unverified online sources. The apex bank launched a pilot project to launch digital currency popularly known as the Central Bank Digital Currency (CBDC) or the e-Rupee.
Let’s look at some of the crucial aspects of digital currency (CBDC).
What is Central Bank Digital Currency (e-Rupee)?
According to the concept note by the RBI, CBDC is a legal tender issued by a central bank and will be akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and shall be accepted as a medium of payment, legal tender, and a safe store of value. It would appear as a liability on a central bank’s balance sheet. In simple words, the e-Rupee is the digital version of physical currency. You will be able to use it to make payments like the physical currency. The value of each e-Rupee is the same as its physical currency denomination.
Adhil Shetty, CEO, Bankbazaar.com, says, “India has made significant progress with innovation in digital payments and technology has made it possible to develop a new form of money viz. Central Bank Digital Currencies (CBDCs). RBI’s digital currency will ensure transparency and faster settlement of payments. With the launch of the pilot, India is now among the few nations in the world to have its own blockchain currency. As the rollout progresses, you can expect to gain more clarity on CBDC.”
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Difference between the e-Rupee and UPI
UPI is the digital platform that allows banking transactions, whereas the e-Rupee is a legal tender currency backed by the RBI. CBDC is a digital version of currency issued by the central bank. UPI (Unified Payments Interface) is a real-time payment system. It allows instant transfer of money between bank accounts using mobile phones.
Benefits of Digital Currency
E-Rupee can play a vital role in enabling targeted payments for various subsidy schemes and social benefits. It can be tailored to be used for allocating funds for various schemes announced during the budget. E-Rupee can work without the internet. So, it can be used in remote areas where there is no electricity or communication as a secure payment solution. When the infrastructure is ready, the e-Rupee can be used effectively for inward or outward remittances, depending on the kind of interoperability. One of the key benefits of the e-Rupee is that if it is accepted widely by the public, it can also help solve the problem of fake currency.
The use of an offline feature will be beneficial in locations where electrical power or mobile network is unavailable. Since the central authority will manage it, it would ensure safety, liquidity, settlement finality and integrity.
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Concerns Related to Digital Currencies
E-Rupee has been introduced in a pilot mode and requires more clarity. For example, how users’ data will be handled, especially if private players are involved in it. For public acceptance, it must imbibe all possible features of physical currency without having too much complexity about its usage. Concerns related to cyber security, data protection, hacking and other tech-related issues need to be addressed to mitigate cybercrimes.
The central bank’s digital currency seeks to ensure transparency and low cost of operation, among other benefits, and the potential to expand the existing payment systems. However, it is still in development, and more clarity will come once the digital currency is fully launched and people start using it.