Digital Rupee- Central Bank Digital Currency (CBDC)
In this Digital India, Central Bank has issued Central Bank Digital Currency (CBDC) as an e₹ (digital Rupee) in the digital form of currency notes. While most central banks across the globe are exploring the issuance of CBDC, the key motivations for its issuance are specific to each country’s unique requirements.
Today in this Concept, We shall know the meaning, objectives, choices, benefits, and risks of issuing a CBDC in India, as e₹ (digital Rupee). The e₹ will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster, and cheaper. It also has all the transactional benefits of other forms of digital money.
This blog will also help to create awareness about the plans and features of issuing CBDC as e₹.
Contents of this post
Latest updates on CBDC (digital rupee)
Operationalization of Central Bank Digital Currency – Retail (e₹-R) Pilot-The Reserve Bank announces the launch of the first pilot for retail digital Rupee (e₹-R) on December 01, 2022. It may be recalled that RBI had, in a Press Release dated October 31, 2022, indicated that the pilot in e₹-R would commence in a month’s time.
Why CBDC (Digital Rupee) is introduced?
In this digital world, we are in the foreground of a watershed movement in the evolution of currency that will decisively change the very nature of money and its functions in the upcoming future.
Hence, The Reserve Bank of India is set to launch the pilot of its central bank digital currency (CBDC), which is notified as legal tender in a digital form. Commonly known as the digital rupee, it will be exchangeable at par with existing currencies and will be considered acceptable for payments and a safe store of value. And being digital it is likely to be easier, faster, and cheaper. It also has all the transactional benefits of other forms of digital money.
What is Digital Rupee?
A Digital Rupee or Central Bank Digital Currency (CBDC) or e₹ is a digital form of currency notes issued by a central bank. Digital currency or the rupee is an electronic form of money, that can be used in contactless transactions. And being digital it is likely to be easier, faster, and cheaper. It also has all the transactional benefits of other forms of digital money.
What are the types of (CBDC) Digital rupees?
There are two types of CBDCs introduced
| No, | Types | Uses |
|---|---|---|
| 1. | CBDC Retail (CBDC-R) | 1. Retail CBDC is an electronic version of cash primarily meant for retail transactions. 2. Retail CBDC would be potentially available for use by all -For general purposes, -Private sector, -Non-financial consumers, -and businesses. 3. It is believed that Retail CBDC can provide access to safe money for payment and settlement as it is a direct liability of the Central Bank. |
| 2. | CBDC Wholesale (CBDC-W) | 1. Wholesale CBDC is designed for restricted access to select financial institutions. 2. Wholesale CBDC is intended for the settlement of interbank transfers and related wholesale transactions, 3. Wholesale CBDC has the potential to transform the settlement systems for financial transactions and make them more efficient and secure. |
What will be the benefits of Digital Rupees?
These are the benefits of Introducing Digital Rupees in India-
- Firstly, To push India forward in the virtual currency race. And, of course, due to the growing importance of cryptocurrency.
- Lower transaction cost.
- Not able to damage.
- No tax evasion.
- Control on corruption.
- No expense in printing money.
- Real-time account settlements.
- You don’t have to open a bank account to transact with a digital rupee.
- Fast cross-border transactions.
- No risk of volatility, as the RBI, will back it.
- With blockchain technology, the digital rupee will increase efficiency and transparency.
- Compared to currency notes, the digital rupee will be mobile forever.
- Blockchain will also enable real-time tracking and ledger maintenance.
- The payment system will be available to wholesale and retail customers 24/7.
- Indian buyers can pay without a middleman.
What is the difference between digital rupees and cryptocurrency?
Digital Rupee vs Cryptocurrency-
| No. | Digital Rupee (CBDC) | Cryptocurrency |
|---|---|---|
| 1. | Digital Rupee is Introduced by the Indian Government. | Cryptocurrency has no issuer. |
| 2. | It is Digital Money. | Cryptocurrency is a commodity or claims on commodities or digital assets. As per RBI- It is not Money. |
| 3. | The CBDC is the digital avatar of paper currency issued by central banks like RBI and should be exchangeable with cash. The commonly-known digital rupee is a currency that the RBI issues and the digital rupee will have the same function. | but it is a decentralized asset like BTC, BNB, DOT, etc. It can be traded on crypto exchanges. |
| 4. | The digital rupee will be a legal tender, which means you can use it to buy what you want. For example, digital wallets, NEFT, and IMPS are examples of digital rupees. So, when the RBI starts circulating the digital rupee, all citizens of India can use it. | You can not use crypto as currency. |
| 5. | It is not encrypted | It is encrypted |
| 6. | Public Records | Private records |
Digital Rupee Details in Hindi
Indian Digital Rupee (CBDC) Concept notes pdf
Concept Note on Central bank digital currency pdf
CBDC (Digital currency) in the world
In this digital world, more than 60 central banks have expressed interest in CBDC with a few implementations already under pilot across both Retail and Wholesale categories, and many others are researching, testing, and/or launching their own CBDC framework.
As of July 2022, there are 105 countries in the process of exploring CBDC, a number that covers 95% of the global Gross Domestic Product (GDP). 10 countries have launched a CBDC, the first of which was the Bahamian Sand Dollar in 2020 and the latest was Jamaica’s JAM-DEX. Currently, 17 other countries, including major economies like China and South Korea, are in the pilot stage and preparing for possible launches. China was the first large economy to pilot a CBDC in April 2020 and it aims for widespread domestic use of the e-CNY by 2023. Increasingly, CBDCs are being seen as a promising invention and as the next step in the evolutionary progression of sovereign currency.
How digital rupee will work?
Digital Rupees will be used for large payments and settlements. According to the RBI, it will be used as the settlement amount on the purchase and sale of government securities i.e. government bonds.
The digital rupees will work in both online mode and offline modes.
Digital payments actually rely on online communications with several intermediaries such as banks, payment networks, and payment processors to authorize and process payment transactions. While these communication networks are designed to be highly available with continuous uptime, there may be times when CBDC users will experience little or no access to network connectivity.
For offline mode trial also going on because, In India out of the 1.4 billion (143.3 crores) population, 825 million people have internet access. This means many Indians will not be able to use CBDCs due to connectivity unavailability. To ensure the widespread use of CBDC, offline capabilities need to be incorporated.
The use of offline transactions would be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not available. For offline transactions, the wallets must be able to independently verify the authenticity of any CBDC transaction without communicating with the server during the transactions.
How to buy a digital rupee?
You will be able to buy it soon a digital rupee in your wallet because Digital payments actually rely on online communications with several intermediaries such as banks, payment networks, and payment processors to authorize and process payment transactions.
What is the name of the digital rupee app?
It is not notified but will be available very soon.
List of Abbreviations for Digital Rupee
Here is the list of abbreviations which will help to know the words
- AML/CFT- Anti-Money Laundering/ Combating the Financing of Terrorism
- BBPOUs- Bharat Bill Payment Operating Units
- BBPS- Bharat Bill Payment System
- BIS- Bank for International Settlements
- CBDC- Central Bank Digital Currency
- CBDC-R- CBDC Retail
- CBDC-W- CBDC Wholesale
- CDD- Customer Due Diligence
- CPMI-MC- Committee on Payments and Market Infrastructures and the Markets
- Committee
- CTS- Cheque Truncation System
- DEA- Department of Economic Affairs
- DLT- Distributed Ledger technology
- DPI- Digital Payment Index
- ECB- European Central Bank
- ECS- Electronic Clearing Service
- FATF- Financial Action Task Force
- FPS- Fast Payment Systems
- GDP- Gross Domestic Product
- IMF- International Monetary Fund
- IMPS- Immediate Payment Service
- IOSCO- International Organisation of Securities Commissions
- KYC- Know Your Customer
- NACH- National Automated Clearing House
- NDTL- Net Demand and Time Liabilities
- NEFT- National Electronic Funds Transfer
- NETC- National Electronic Toll Collection
- RBI- Reserve Bank of India
- RTGS- Real-Time Gross Settlement
- TSPs- Token Service Providers
- UPI- Unified Payments Interface
Faqs on Digital Rupee (CBDC)
There are 3 types of Models for the issuance and management of CBDCs-
1. Direct,
2. Indirect
3. Or a Hybrid model
There are two types of forms of CBDC (Digital Rupee)-
1. Token-based
2. Account based
There are two types of instrument designs of CBDC-
1. Remunerated or
2. Non-remunerated
The full form of CBDC is the Central bank digital currency and also known as the digital rupee.
There are 9 banks included in the trial of the digital rupee-
1. IDFC
2. Bank of Baroda
3. Union bank of India
4. HDFC
5. SBI
6. ICICI
7. Kotak Mahindra bank
8. HSBC
9. Yes Bank
While addressing FIBAC on Wednesday, Governor Shaktikanta Das said, that they have launched the trial of the digital currency (CBDC) project.
No, the Digital rupee (e₹) is a digital currency. It will be used for issuing virtual currency for transactions in government securities. The money will be in virtual form just like other cryptocurrencies but the digital rupee will not be decentralized, it will be regulated by the Reserve Bank of India (RBI).
The price of the digital rupee will be the same as the Indian currency.
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