Indian Rupee’s Digital Debut: The Reserve Bank of India (RBI) on December 1, 2022, launched the Central Bank Digital Currency (CBDC) — digital rupee or e-rupee (e₹) — for the common man. The digital rupee is a central bank digital currency issued by the RBI. It is similar to the physical cash that you hold in your wallet except that the e-rupee is held electronically in a digital wallet overseen by the RBI.
The digital rupee is recognised as legal tender by the RBI, and thus has to be accepted by everyone in the country as a medium of exchange.
It is, however, different from deposits that you hold in a bank. Unlike deposits which are paid interest, the digital rupees in your wallet are not paid any interest by the central bank. Deposits held in banks can be converted into digital rupees and vice-versa.
Why India Needs a Digital Currency?
According to the RBI, the digital rupee system will “support India’s digital economy, improve financial inclusion, and improve the effectiveness of the monetary and payment systems.”
Leveraging blockchain technology for the e-rupee is a stepping stone for India to become a $1 trillion digital economy, say experts. India is witnessing massive growth in digital transactions — the volume and value of UPI transactions increased by 118 per cent and more than 98 per cent respectively in Q2 2022 compared to Q2 2021.
Further, experts opine that the digital rupee rollout is a big step ahead in India’s digital transformation. It will be an excellent opportunity for India since it will potentially increase the ease of doing business, as well as improve resilience and security of the entire payments infrastructure.
Finally, the biggest factor is, there will be no longer geographical limits with the internationalization of current and financial account transactions. “A Digital Rupee that can be held by non-residents and is available to conduct cross-border financial transactions seems a natural extension to enable new retail payment possibilities and business ventures,” said Pranav Arora, Managing Director and Lead of Applied Intelligence, Accenture in India.
He further said: “The launch of the Digital Rupee in India is expected to usher in more efficiency, transparency, systemic resilience, and governance in our currency management system.”
RBI’s e-rupee/CBDC VS Crypto Currency And UPI
The difference between CBDCs and cryptocurrency is simple – the former is backed by a central bank or a sovereign nation, while the latter is considered like private money that is not backed by any sovereign entity. However, there is not much difference in terms of payments as in both CBDC and crypto, payment settlement happens instantaneously.
As far as UPI transactions are concerned, the settlement of transactions happens on the backend between two banks. However, with both CBDC and crypto, the settlements happen instantaneously as money is programmable.
While RBI is all set to roll out CBDC in full scale, especially the retail e-rupee, many are still skeptic about the move due to the associated risks.
Risks Associated with CBDCs
Since CBDC is a form of digital currency, one of the most common risks associated with this form of e-rupee is data privacy and financial stability. Experts believe that many countries have not launched CBDC till now, even after researching on it, as privacy and cyber security are big concerns.
It is also understood that CBDCs have the ability to accumulate sensitive user and payment data as it is still a part of the web. If the data ever goes in the wrong hands, it can easily be used to spy on private transactions, secure sensitive details, and also indulge in cyber crimes. Hence, it is believed that the implementation of security protocols is a must to mitigate risks while rolling out CBDCs.
Is the Digital Currency Future of Money?
As the future of commerce is a cashless one, experts are anticipating the digital rupees will stand out in the future’s needs. Digital currency will always have a lifeline because it cannot be physically lost or damaged. The hazards of Bitcoin volatility will be reduced.
The e-rupee will also reduce the operating costs associated with producing, distributing, and storing banknotes. The e-rupee can be extremely helpful in preserving the environment because it will lessen the need for paper.
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