General

Central Bank Digital currency in India. 

India’s central bank RBI launched retail- digital currency on December 1, 2022, on a test basis. Digital currency(e-RUPI) is an electronic form of money or currency issued by the RBI. It will have the same dominations as fiat currency and can be used for contactless transactions. This post outlines some of the main objectives of India’s digital currency.

History of digital currencies.

Money is a continuously evolving factor, from a Barter system to cash to digital currencies. The tremendous growth of internet-based products and eCommerce has opened the way for digital transactions. People prefer digital payments over cash payments because it’s simple and hassle-free. When a user makes a digital payment, the cash is debited from the sender’s bank account and credited to the receiver. Here the mode of payment is still cash but in a different form. E-RUPI doesn’t involve any form of cash. Bitcoin is the best example of digital currency, but they are not the same.

India’s Digital Currency vs Other Cryptocurrency

Both currencies’ purposes are similar, but they aren’t the same. A cryptocurrency is decentralized and works on cryptography technology. An e-RUPI or Central Bank Digital Currency (CDBC) is regulated and issued by the Government. 

Key objectives of Digital Currency

  • The e-Rupi offers end-to-end digital transactions. It will have the same dominations as cash.
  • It doesn’t involve any physical payment processes and offers contactless and cashless transactions. 
  • E-Rupi or CDBC is a legal tender and everyone can use and store the currency.
  • Users need not have bank accounts as the e-RUPI can be transferred from E-wallets.

Types of Digital Currency In India.

The Indian Government has divided digital currency into two categories based on its usability and levels of its accessibility.

  • Wholesale digital currency: This form of money would take the role of RTGS systems and be utilised by financial organisations to buy and sell financial assets.
  • Retail digital currency: It would be possible to obtain government incentives and subsidies as well as use this currency to pay for goods and send money to friends and family.

Digital currencies in other countries.

Nearly 100 digital currencies are being studied or produced by various central banks globally, according to the International Monetary Fund (IMF). The IMF claims that CBDCs can improve financial flow transparency and perhaps reduce currency substitution- the use of a foreign currency in addition to or instead of a country’s home currency. The Bahamian sand dollar and the Nigerian eNaira, both debuted in October 2020 and October 2021.

Bahamas

Various factors influence why countries conduct investigations and grant CBDCs. However, the Bahamas asserts that the main driving force behind the initiative was the need to offer financial services to underserved and unbanked communities on more than 30 of its populated islands.

China

The goal of China is different.  they have been working on the Digital Currency and Electronic Payment (DCEP) initiative since 2014 to counteract the dominance of the US dollar. The Chinese CBDC reportedly does not employ blockchain but does make use of several of its key components.

Sweden

Sweden has the lowest reliance on cash, accounting for about 1% of GDP as opposed to 11% for the eurozone. Some retailers turned away cash as a form of payment because it was too expensive as a result of the decline in cash usage seen over the past number of years. Although they have no immediate plans to go live, they are frequently cited as one of the most cutting-edge efforts.

Importance of digital currency in retail payments

As stated before, the e-RUPI will be issued as a digital token that serves as legal tender in the same denominations as paper money. Users will be able to complete transactions with e-RUPI using a digital wallet offered by the banks which can be stored on smartphones and other devices. It can be converted into other currencies, such as bank savings, and there won’t be any interest. It will be used similarly to how UPI and cash transactions are carried out but using different technology.

Conclusion.

CBDC has the potential to be a revaluation for the payment industry if the requirement is satisfied. Central bank digital currency must be designed as an open and shared infrastructure for the private sector to simply build on top of it. Finally, eRUPI- the digital currency has to be accessible to every citizen and importantly the transaction process should be simplified. CDBC is an innovation which is still in the development and testing phase. It may take a few more years to notice their significant benefits. To frequently read more updated technical blogs visit our website.

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