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All You Need To Know About RBI Retail Digital E-Rupee

The Reserve Bank of India (RBI) made the introduction of the digital e-rupee for specific use cases on 1 November 2022. As per the certain notification, the first digital rupee pilot began in the wholesale segment. The pilot has been by the medium of nine banks—State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC. RBI had proposed to the government in October last year to broaden the scope of the paper rupee to get included in the digital currency.

What do you mean by CBDC?

RBI defines Central Bank Digital Currency (CBDC) as a digital form of legal tender that is issued by a central bank. In other simple words, it is a digital form of fiat currency, or you can say the Indian Rupee. As a result, CBDC can be exchanged for fiat currency.

What do you mean by Blockchain Technology?

A blockchain is a system of recording data that is impossible to modify, hack or cheat. It is a kind of digital ledger of transactions that is copied and distributed to the entire network of devices on the blockchain. This technology is helpful for storing and transacting digital currency. The technology has a feature that is difficult to tamper with, and it is one of the safest ways to exchange currency digitally.

Why Is RBI making the introduction of CBDC?

CBDC has an objective to complement rather than replace the current forms of money and is engaged in facilitating an additional payment avenue to its users for not replacing the existing payment systems.

RBI has a belief that the digital rupee system will definitely bolster India’s digital economy and will be helpful for enhancing financial inclusion and making the monetary and payment systems more efficient. There are lots of reasons behind this fact:

a) Reduction in the association of cost with cash management.

b) Adopt digitization to achieve a less cash economy.

c) Supports competition, efficiency and innovation in payments.

d) To explore the usability of CBDC for improvement in cross-border transactions.

e) Support financial inclusion.

f) Build the trust of the common man in national currency vis-a-vis the proliferation of crypto assets.

Features of Digital e-Rupee

1. CBDC is a sovereign currency which is basically issued by central banks with their monetary policy.

2. It is highighted as a liability on the central bank’s balance sheet.

3. Digital Rupee works as a medium of payment, legal tender, and a safe store of value by all citizens, enterprises, and government agencies.

4. CBDC is easily convertible against commercial bank money and cash.

5. CBDC is a fungible legal tender.

6. CBDC is expected to reduce the cost of issuance of money and transactions.

How Is Digital e-Rupee unique from Money in Digital Form?

Differentiating the difference between the two- CBDC and money in digital form, RBI mentioned that CBDC is something unique from existing digital money that is currently available to the public, this is all because of the fact that CBDC would be a liability of the Reserve Bank and not of a commercial bank.

Digital Rupee vs Cryptocurrency

CBDC will assign all the benefits that we see with cryptocurrencies and digital forms of payment. A digital currency can never be torn, burned, or physically damaged. They cannot be physically lost. The lifeline of a digital form of currency will be infinite.

Difference between Digital Rupee and Cryptocurrency

A cryptocurrency is a decentralized digital asset and acts as a medium of exchange based on blockchain technology. However, it has been controversial due to its decentralized nature, and it can be operated without any intermediary like banks, financial institutions, or central authorities. CBDC issued by RBI will be a legal tender in the form of digital.

The digital rupee is basically unique in nature when compared with Bitcoin, Ethereum and other cryptocurrencies. Primarily, this currency will be backed by the government. Secondly, it has an intrinsic value on account of government backing; the digital rupee will be equivalent to holding a physical rupee equivalent.

Benefits of Digital Rupee

Apart from the benefit of reducing transaction costs, the digital rupee has a digitized currency that will make it easier for governments to access all transactions happening within authorized networks. The government will have better control over how money leaves and enters the country, which would allow them to create a space for better budgeting and economic plans for the future and, overall, a much safer environment.

RBI has been exploring the advantages and disadvantages of a central bank digital currency for several days and is working towards a strategy to implement it in a phased manner.

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