The Reserve Bank of India on Tuesday announced the launch of the first pilot project of the retail digital rupee. It will start on December 1, 2022. At present, this digital currency will be launched in Mumbai, Delhi, Bangalore, and Bhubaneswar on December 1. After that, in the first phase, it can be bought and sold in nine other cities as well. RBI had earlier launched a pilot project of the digital rupee in the wholesale segment on 1 November 2022.
Digital rupee transactions will be done through four banks in the first phase
The first pilot project of the retail digital rupee will involve four public and private sector banks SBI, ICICI, Yes Bank, and IDFC First. The Central Bank Digital Currency (CBDC) will be issued in the form of a digital token and it will be a legal tender i.e. it will be considered as legal currency. E-Rupee will be issued at the same value at which currency notes and coins are issued at present.
RBI's digital currency should be equipped with features like trust and security
The RBI said on Tuesday that the test would be carried out at select locations in the Closed User Group (CUG) on December 1. It is equipped with the same characteristics of trust, security, and final settlement as physical currency. The pilot project will test the robustness of the entire process of creation, distribution, and retail use of the digital rupee in real-time. Earlier, the pilot test for its bulk use started on November 1. The digital form will have all the features of currency notes. People will be able to convert digital money into cash. The special thing is that, unlike cryptocurrencies, there will be no fluctuation in their value. No interest will also be payable on this.
What is Central Bank Digital Currency ie CBDC?
It is an electronic form of cash. As you do cash transactions, you will be able to do digital currency transactions as well. CBDCs act somewhat like cryptocurrencies (like bitcoin or ether). ,
How will the digital rupee work?
Central Bank Digital Currency (CBDC) will be a currency based on blockchain technology. Where wholesale digital currency is used by financial institutions (such as banks), the common man will be able to use the retail currency. E-Rupee, the digital form of Indian currency, will be distributed through four banks at present. This currency will be safe in the apps available from these banks. Users will be able to transact with e-Rupee through apps provided by banks, and digital wallets stored in mobile phones and devices. They can be easily sent from mobile phone to each other and all kinds of goods can be bought. This digital rupee will be completely regulated by the Reserve Bank of India.
Transactions through digital wallets: Digital rupees can be kept on mobile phones and other devices. It will be distributed through banks. Users will be able to transact in e-Rupee through digital wallets provided by banks participating in the pilot test.
QR Code Payments: Through e-Rupee, both person-to-person (P2P) and person-to-merchant (P2M) transactions can be done, said RBI. Payment can be made through the QR code installed at the merchant.
Will not get any interest: Just like cash, the holder will not get any interest on digital currency. It can be used as a deposit with banks.
What will be the advantage of the digital rupee?
Ease of transfer of money to banks, cost of printing currency will be reduced, prevention of illegal currency, easy tax collection, black money, and money laundering will be curbed. E-Rupee is equipped with features like trust, security, final solution. E-Rupee will be issued at the same value at which currency notes and coins are issued at present.
How is Digital Rupee different from Digital Payments?
Very different. You must be thinking that digital transactions are being done through bank transfers, digital wallets, or card payments, then how did digital currency become different?
It is important to understand that most digital payments work like cheques. You give instructions to the bank. He makes a payment or transaction of 'real' rupees from the amount deposited in your account. In every digital transaction, many organizations, and people are involved, who complete this process.
For example, if you made a payment with a credit card, did the person in front get it immediately? No. Digital payments take anywhere from a minute to 48 hours to reach the recipient's account. This means the payment does not happen immediately, it has a process.
When you talk about digital currency or digital rupee, you have paid and the other person has received it. This is its specialty. The digital transaction happening now is the transfer of money deposited in a bank account. But CBDC is going to replace currency notes.
How will this digital rupee be different from cryptocurrencies like bitcoin?
The concept of digital currency is not new. It comes from cryptocurrencies like bitcoin, which launched in 2009. After this, from Ether, Dogecoin to fifty cryptocurrencies have been launched. Over the years, it has evolved into a new asset class that people are investing in.
Private cryptocurrencies are issued by private people or companies. Due to this, it is not monitored. People are transacting anonymously, due to which cryptocurrency is being used in terrorist incidents and illegal activities. They are not supported by any central bank. This currency is limited, due to which its value fluctuates according to supply and demand. The value of one bitcoin itself has declined by up to 50%.
But when you talk about the proposed digital rupee, the Reserve Bank is launching it here. There is neither a quantity limit nor an issue of financial and monetary stability. The one rupee coin and the digital rupee have equal strength. But digital money will be monitored and the Reserve Bank will know who has how much money.
Has any country launched a digital currency so far?
Yes. After six years of research, the People's Bank of China launched two pilot projects in April 2020. The e-yuans were distributed through a lottery system. By June 2021, 24 million people and companies had made e-CNY i.e. Digital Yuan wallets.
Transactions of 3450 crores digital yuan (40 thousand crore rupees) have been done in China in utility bills, restaurants, and transport. A Bloomberg report says that by 2025, the digital yuan will account for 9% of the Chinese economy. If successful, China would become the first country in the world to launch a central bank digital currency.
In January 2021, the Bank of International Settlements reported that 86% of central banks around the world are working on digital currency. The Bahamas first introduced CBDC in October 2020 under the name 'Sand Dollar'. Also launched in 8 Eastern Caribbean countries including Jamaica and Nigeria.
Canada, Japan, Sweden, Switzerland, the UK, and the United States, as well as the European Union, are working on a digital currency with the Bank for International Settlements.
15 countries currently testing: Russia, China, Saudi Arabia, UAE, Sweden, South Korea, Hong Kong, Thailand, Singapore, Malaysia, Ukraine, Kazakhstan, D. Africa, including Ghana. 26 countries including India were still in the stage of development.
There are four major advantages of digital currency-
Efficiency: It is less expensive. Transactions can also happen faster. Compared to this, the printing cost of currency notes, and transaction cost is also high.
Financial Inclusion: Digital currency does not require an individual to have a bank account. It can also be offline.
Prevention of corruption: Digital currency will be monitored by the government. Tracking of digital money will be possible, which is not possible with cash.
Monetary Policy: It will be in the hands of the Reserve Bank how much and when to issue the digital rupee. Excess or shortage of the rupee in the market can be managed.
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