India Digital Currency – RBI to Launch Digital Rupee Soon

Union Budget 2022 not only made headlines in India but also on an international level due to the announcement related to India’s first central bank digital currency – Digital Rupee.

In Union Budget 2022, finance minister Nirmala Sitharaman announced that the Reserve Bank of India (RBI) will soon launch its very own digital currency which will be based on blockchain and other technologies. This digital currency will give a strong boost to the digital economy of India.

The finance minister clearly stated that central bank digital currency will be the only recognized digital currency in India.

To understand Digital Rupee, let’s first understand what is central bank digital currency?

What is Central Bank Digital Currency (CBDC)?

Central bank digital currency is a digital form of a country’s sovereign/fiat currency (currency like the Indian rupee, US dollars, UK pounds, etc.). This currency is regulated by the central bank rather than any private organization.

All the transactions are recorded in a secure digital ledger based on blockchain technology.

This currency holds a legal tender status and carries equal value as printed money or coins.

So basically CBDC is a digital form of cash that you use for your day-to-day transactions.

What is the Need for CBDC / Why Does India need Digital Currency?

In 2020, the survey of the Bank for International Settlements (BIS) stated that almost 86% of central banks doing research on CBDC implementation to convert their conventional currency into digital currency. And almost 14% of central banks are in the advanced stage to implement it (pilot testing phase).

The interest in CBDC rises after the emergence of Bitcoin & other cryptocurrencies. People are heavily investing in these decentralized digital currencies raising a bar of concern for government authorities as the transactions related to cryptocurrency are not traceable. And they can also create financial instability. 

An increasing surge of these private cryptocurrencies can badly affect the economic growth of the country in near future. To avoid this government is taking a step toward creating its own digital currency.

As per the RBI website, below are the justified reasons for adopting the central bank digital currency (CBDC),

• Central banks, faced with dwindling usage of paper currency, seek to popularize a more acceptable electronic form of currency (like Sweden);

• Jurisdictions with significant physical cash usage seeking to make issuance more efficient (like Denmark, Germany, Japan, or even the US);

• Central banks seek to meet the public’s need for digital currencies, manifested in the increasing use of private virtual currencies, and thereby avoid the more damaging consequences of such private currencies.

How Digital Rupee would be different from UPI & Digital Wallets?

Currently, we are living in an almost cashless era as we hardly carry any cash with us. We do maximum transactions UPI, Google Pay, Paytm wallets, Phonepe wallets, etc. That means we are already using a digital form of money or we can say digital currency.

So how Digital Rupee would be different from UPI & digital wallets?

First, you won’t have to transfer the amount from your bank to any third-party wallet associated with a private organization. That’s how your private data will be secure and it will also avoid the risk of a data breach.

Secondly, as per the industry experts, central bank digital currency will improve the rate of transactions.

Number of times we struggle to complete the transactions due to some technical glitch while using private organizations’ wallets or UPI. This issue does not create much havoc now because we have another option to make payment ie via Cash.

Digital rupee will be the complete replacement for cash.

Once the government launches it, there won’t be any other alternative to complete transactions. We will have to make payment through only CBDC.

That’s why the government will also work on offering a smooth transaction gateway that will provide a 100% transaction success rate. 

Let’s find out some other advantages of central bank digital currency.

Advantages of Central Bank Digital Currency

Faster Settlements

Whenever we do a heavy transaction online, it takes a few days or hours to reflect in the receiver’s account. The same thing happens with international or cross-border transactions. It’s because of the multibank verification process.

With CBDC, within a click, you will be able to transfer funds and settle transactions quickly as there won’t be any multibank verification process. CBDC offers fast, secure, and cheaper transaction options.

Cost Reduction

The cost associated with currency printing, storing, distributing, and transporting can be reduced via CBDC.

Prevent Corruption & Illicit Activities

As CBDC will be the digital money, the government will be able to keep a track of each unit of currency which will ultimately reduce corruption, money laundering, illicit drug activities, and other criminal activities.

Avoids Commercial Bank Risk

With CBDC, there won’t be any compulsion to create a bank account to store money. This avoids the risk of your hard-earned money in case of a commercial bank collapse.

CBDC is issued and regulated by central banks, as long as central banks are stable, your funds are secure.

Indian Digital Currency Launch Date

India’s digital currency is still in the pilot testing phase and as per the finance ministry, RBI could launch it by early 2023. There will be so many challenges as not all the population has the means to access digital currency. So it would be foolish to think that India’s digital currency would completely wipe out the existence of cash.

Difference between Digital Rupee & Cryptocurrency

Nowadays whenever someone says digital currency, maximum people think about cryptocurrency. But digital rupee would be completely different from cryptocurrency.

Digital Rupee will be backed by the central bank and every transaction would be trackable.

On the other hand, cryptocurrency is not backed by any government or central authority. It is a decentralized digital asset that allows anonymous transactions via peer-to-peer networks without any interference from banks or third parties.

The only similarity between these two is the technology used – Blockchain technology.

India’s Digital Currency FAQ