India has been amongst the leaders in digital payments and the government’s support has further spearheaded digitization.
The government’s introduction of CBDC, or Central Bank Digital Currency or e-rupee, using blockchain and other technologies was another significant announcement made in Budget 2022.
I realize that this raises a lot of questions. What is CBDC, will it differ from UPI, will it resemble bitcoin, and so on are some of the questions that need to be answered. Let’s take some of these ideas and grasp them individually.
Central Bank Digital Currency (CBDC), or digital rupee (e₹), is a digital form of currency notes issued by the central bank.
e₹ will provide an additional option to the currently available forms of money. Although it is exactly like currency, it is easier, quicker, and less expensive because it is digital. And, the best part is, it also has all the transactional benefits of other forms of digital money.
- Type of CBDCs
On the basis of usage and the functions performed by the digital rupee, CBDC can be classified into two broad categories — general purpose (Retail) (CBDC-R) and Wholesale (CBDC-W).
- Retail CBDC would be potentially available for use by all viz. private sector, non-financial consumers, and businesses.
- Wholesale CBDC is made to only be accessed by a small number of financial institutions.
Retail CBDC is an electronic version of currency primarily intended for retail transactions, whereas Wholesale CBDC, is intended for the settlement of interbank transfers and related wholesale transactions.
- An RBI-backed digital rupee reduces the risks of volatility and increases transparency.
- Lowering the operational expenses associated with managing physical cash, promoting financial access, and improving the payments system’s robustness, efficiency, and creativity.
- Give the general public access to use for private virtual currency without the risks.
- Cybersecurity: CBDC ecosystems may be vulnerable to the same types of cyberattacks that current payment systems are.
- Concern over privacy: The CBDC will likely produce enormous amounts of data in real time. It will be difficult to use the Data effectively and there will be privacy and anonymity issues.
- In India, there still exists a digital gap and financial illiteracy.
Post your thoughts/ opinions/ doubts and let’s discuss the new buzz of “Digital Rupee” here!