Get up to speed with the digital rupee: a brief overview
India has achieved numerous successes in the digital sector and is now poised to make another breakthrough with its own digital currency called the Digital Rupee (e₹). This tokenized digital form of the Indian Rupee, which will be released by the Reserve Bank of India (RBI) as a central bank digital currency (CBDC), is founded on the principles of trustworthiness, security, liquidity, and reliability. It seeks to provide an extra choice compared to the currency forms that are currently available.
On the first of December, the Reserve Bank of India launched its Central Bank Digital Currency (CBDC) pilot project with an introduction of the 'Retail Digital Rupee (e₹-R) in four cities: Mumbai, New Delhi, Bengaluru and Bhubaneswar. The project is being conducted with a closed user group, which includes customers, merchants, and four banks - State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank - that are being monitored and regulated in order to evaluate the impact of the project.
As a part of this pilot project, the central bank of India has introduced two types of digital rupee in India, namely retail or general purpose and wholesale. Financial institutions primarily use Digital Rupee-Wholesale (e₹-W), while consumers and businesses use Digital Rupee-Retail (e₹-R) in the same way that physical currency is usually utilised.
5 important points to know about digital rupee (e₹-R) pilot
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People will be able to carry out transactions using the e₹-R through a digital wallet provided by the collaborating banks that one can access via mobile phones or computers.
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Similar to cash, the Digital rupee will not generate any interest returns and can be exchanged for other forms of currency such as cash or bank deposits.
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Being an official national currency in digital form, it will be recorded as a liability (currency in circulation) on the balance sheet of the Reserve Bank of India.
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Digital rupee payments may be transferred between individuals (P2P) as well as to merchants (P2M). Payments to vendors can be made with the help of QR codes presented at the location.
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The pilot will evaluate the overall implementation, circulation, and utilisation of digital rupees in real-time. According to the insights derived from this pilot, and the application of e-R token, it will be developed to involve more banks, users and places over time.
Digital rupee versus cryptocurrency: understanding the difference
Millions of people in India have taken a keen interest in both cryptocurrencies and central bank digital currencies (CBDCs). Despite the fact that both are considered digital assets, there are certain differences between the two that are worth noting.
Exploring the difference between digital currency and UPI
The arrival of Central Bank Digital Currencies (CBDCs) for both wholesale and retail use has generated a lot of excitement within the country. Just like UPI, the public is eager to experience this technology on a day-to-day basis. What remains to be seen, however, is what sets the digital rupee apart from UPI?
Unlocking the potential of the digital rupee: major benefits and opportunities
The Central Bank of India's newly proposed Digital Rupee has the potential to revolutionize the safety and security of online transactions. Here are some of the key benefits of using this digital currency.
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The implementation of the Digital Rupee will lead to a significant decrease in costs associated with issuance of money and other related transactions.
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Digital currencies are free from any kind of damage or physical deterioration that physical currency is prone to.
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Digital rupee has the opportunity to get rid of potential risks such as bank failures or bank runs, by removing the need for a third-party. In addition, any risk that is still present in the system is the responsibility of the Reserve Bank of India.
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The central authority regulates the digital rupee, reducing its chances of being volatile and guarantees safety to its users.
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Digital rupee holders do not require a bank account since the currency is fungible, meaning that it is interchangeable and has the same value as legal tender.
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Consumer advantages associated with digital rupee may include increased liquidity, scalability, adoption, convenience of transactions which are also anonymous, and faster settlement processes.
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Non-residents can now have access to a Digital Rupee, which allows them to carry out financial operations across international borders, thus opening up new opportunities for retail payments and business enterprises.
Uncovering the potential risks of digital rupee
With any opportunity, there are certain risks that come along with it. Here is a list of some of the potential drawbacks that must be taken into consideration:
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As digital currencies become more popular, persistent monitoring and upkeep will be necessary in order to protect digital transactions from data breaches or other digital attacks.
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E-Rupee will not offer the same advantages as cash when it comes to earning interest through saving or investing.
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The rapid advancement of technology could be a potential risk to the CBDC infrastructure, leading to a need for greater investment related to updates.
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The use of CBDCs could facilitate the intensive monitoring of user activity through increased surveillance, as the ownership of funds can be tracked and accounted for to prevent fraudulent transactions
So far, so good: A look at how it's going!
The worldwide trend of moving towards a cashless or digital currency system has gained traction in recent times. Several countries, including India, have either implemented or are looking into the possibility of introducing digital currency.
The United Arab Emirates, Ghana, South Africa, Malaysia, Singapore, and Thailand are a few nations that have already launched trials of digital currency.
The digital rupee is already making headway and has been adopted by individuals and merchants with success. Here’s an incident where Anand Mahindra claimed in a tweet that he heard about the digital rupee, India's electronic currency, at a Reserve Bank of India (RBI) board meeting and immediately used it to buy some fruit from a merchant. Evidently, the digital rupee has already made progress and is being used by people and businesses effectively.
Since the launch of the pilot for the digital rupee, 16,000 customers have conducted 160,000 transactions worth a total of ₹64 lakh.
Wrapping up!
The e-Rupee, India's debut into the digital currency arena, is likely to be more inclusive, however its success depends on the country's digital infrastructure. While more research needs to be carried out to comprehend the effect it will have on India's financial system, it is evident that this development can enhance monetary policy, reduce transaction costs, improve financial inclusion, and augment transparency as well as security in digital transactions.
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