The Reserve Bank of India (RBI) will very likely introduce its digital rupee, the Central Bank Digital Currency (CBDC), in this fiscal year itself. Talks of a digital rupee in the country have been swirling since Finance Minister Nirmala Sitharaman announced it during her Budget 2022 speech back in February. At the time, she had said that the digital rupee would be launched in 2022-2023.
How It Works:
- The digital rupee blockchain, being developed by the Reserve Bank, would be able to trace all transactions, unlike the current system of mobile wallet offered by private companies. Earlier, news agency PTI reported that the digital currency issued by the RBI would be numbered in units, just like every fiat currency has an unique number on it.
- CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies or cryptocurrency that have mushroomed over the last decade. Private virtual currencies do not represent any person’s debt or liabilities as there is no issuer. The government has already said that private cryptocurrencies will never be a legal tender. The RBI has been strongly opposing private cryptocurrencies as they could have implications on national security and financial stability.
- There are multiple benefits in using a CBDC. Minister of State for Finance Pankaj Chaudhary had told Lok Sabha last year: “Introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs, reduced settlement risk. Introduction of CBDC would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option.”
- As CBDCs are in a digital form, the dependency on paper will reduce, which in turn, will be beneficial to the environment. The use of CBDCs could also lead to a further shift to a cashless economy. The use of CBDCs will give a boost to the government’s call for cashless payments and positively change the banking scenario.
- Furthermore, as more people opt for CBDCs, it would benefit cross-border remittances. Overall, the cost of transactions would reduce for businesses and the government.
China’s digital RMB was the first digital currency to be issued by a major economy. As of July 2022, four central banks have launched a CBDC: the Central Bank of The Bahamas (Sand Dollar), the Eastern Caribbean Central Bank (DCash), the Central Bank of Nigeria (e-Naira) and the Bank of Jamaica (JamDex).