In a world where huge transactions can be done with just a click, new advancements are making transaction processes and money management even more comfortable with each passing day.
Here comes the Central Bank Digital Currency.
The Central Bank Digital Currency is a legal tender issued by a central bank. This would come with the sovereign-backed, regular currency note.
Shocked?
Well, the only difference you will find here is that these regular notes will be in a digital format.
These notes are unique in the sense that it eliminates the need for a bank account to make transactions with this money.
The RBI's e-rupee will be on par with the ordinary cash we use. These will be termed e-rupee and will be issued as tokens.
One can use this RBI-backed e-rupee for the purpose of making payments and also exchanging the same for physical notes from the bank.
RBI has been persistent in exploring the unique idea of the Central Bank Digital Currency since 2017.
At present, around 105 countries are engaged actively in creating or exploring the possibility of this form of currency for their economy.
How to get this currency?
It is important to note that the Reserve Bank of India will be the currency's sole issuer. However, the distribution of this currency will be undertaken entirely by commercial banks.
Shravan Shetty, MD, Primus Partners, expressed that “Just like we have the Aadhaar app, we will see mobile apps coming up for receiving and transferring these tokens.”
The central bank and the commercial banks alike will maintain separate ledgers for Central Bank Digital Currency transactions.
Senior policy manager at Open Network for Digital Commerce, Devendra Damle, said that the wallets will not be much different from a cryptocurrency hot wallet.
These are connected to the internet and are comfortably accessible through applications.
Is it going to take the place of physical currency?
Well, it can.
One possible loophole of the e-rupee deposits is that they will not pay you any interest, as your regular savings account deposit does.
Additionally, it will be a direct liability of the Reserve Bank of India. Also, the country still prefers cash over digital options for engaging in small-value transactions.
However, the country is also heavily inclined toward digital mediums.
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Can it be compared to the UPI?
Retail use is an unclear issue for most experts concerning CBDCs.
Moreover, if a regular user switches to an e-rupee with UPI, the incentive currently is pretty low.
Is it just like cryptocurrencies?
The answer is a clear NO. The Indian government has always frowned upon crypto investments. This is because if the masses begin investing in private currencies like crypto in great numbers, this may result in threats to the financial system.
In the case of the Central Bank Digital Currency, the Reserve Bank of India will be the sole entity accountable for issuing, validating, and maintaining the records.
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