Any currency in electronic form is considered a digital rupee or currency. It is exchanged virtually and never leaves a computer network. Financial systems in several nations already significantly rely on electronic forms of money. The Reserve Bank of India thinks that because the retail digital rupee is a direct liability of the central bank, it can offer access to safe money for transactions and settlements. Retail CBDC is an electronic version of cash for retail transactions.
What is Digital Rupee?
The Central Bank Digital Currency, or CBDC, is the Reserve Bank of India’s legal tender. The CBDC, also known as the digital rupee or e-Rupee, issued by the RBI, is exchangeable at a rate of 1:1 with fiat currency and operates similarly to a sovereign currency, claims the regulator. The RBI will introduce two new digital rupees: digital rupee for retail for consumer and commercial transactions and digital rupee for wholesale for financial institutions’ interbank payments. The introduction of the digital rupee intends to eliminate the security printing expenses for physical money paid for by the general people, enterprises, banks, and the RBI.
Advantages of Using Digital Rupee
The digital rupee can be highly advantageous. Some of its significant benefits are mentioned below.
A Rapid Method of Transaction
Payments made with digital rupees are considerably faster than traditional methods like wire transfers or automated clearing houses, which require days for financial institutions to authenticate a payment.
Affordable Transfers around the Globe
Global transactions can occasionally become exceedingly pricey. People pay expensive fees to transfer money from one country to another, particularly when currency conversions are involved. Digital assets can disrupt this market by making transactions swift and inexpensive.
Daily and weekly transactions involving digital currency go at the same rate. On the other hand, as banks are closed on weekends and after regular business hours, current money transfers typically take longer.
No Formulation Necessary
There are numerous criteria for physical currencies, including production facilities. In contrast, there is no such expense associated with the digital rupee. Digital currencies are also immune to stains and other physical imperfections that could appear on real currency.
Managed by Government
Instead of attempting to figure out prepaid debit cards or mail individuals a check, the government could transfer payments like child benefits, food stamps, and tax returns to people if it created a central bank of digital currency.
How does Digital Rupee Work?
Before you can start using the digital rupee, it is essential to understand its basic working.
- A few specific geographic areas would be included in the closed user group (CUG), which is made up of participating customers and merchants.
- The digital rupee would exist as a digital token for money.
- The same denominations that coins and paper money are currently dispensed in would apply to it.
- Users can transact with e-rupee using a digital wallet. The participating banks offer digital wallets, which are stored on smartphones or other devices.
- Both person-to-person and person-to-merchant transactions are possible.
- QR codes that are displayed at retail places can be used to make payments to retailers.
- The digital rupee would include qualities like trust, safety, and finality of settlement that are present in real money.
- It evolves to other payments as bank deposits, but it won’t accrue any interest.
Features of Digital Rupee
Digital rupees have some key features that differentiate them from traditional currencies.
- Central banks issue CBDC, a sovereign currency, through their monetary policies.
- It appears as a liability on the central bank’s balance sheet.
- It must be a reliable method of payment, legal tender, and safe storage of funds by all private persons, commercial enterprises, and governmental organisations.
- CBDC can change into cash and bank-issued funds.
- Owners do not need a bank account because CBDC is fungible legal cash.
- It is projected that CBDC will lower the cost of transactions and the cost of issuance of currency.
Difference between Cryptocurrency and Digital Currency
Cryptocurrency highlights the benefits of decentralisation. To avoid the existing regulated intermediation and control mechanisms that are crucial to preserving the integrity and stability of the monetary and financial environment, cryptocurrencies were designed from the ground up. The CBDC is the digital equivalent of paper money issued by central banks like the RBI, and it should be exchangeable for cash. The digital rupee will serve the same purpose as the widely recognised digital rupee, a currency that the RBI creates, but it won’t be a decentralised asset like cryptocurrencies. The currency known as the “digital rupee” will be produced by the central banks overseeing and administering the asset.
You can use the virtual rupee as legal tender to make purchases of any kind. NEFT, IMPS, and digital wallets are a few examples of digital rupees. Therefore, once the RBI starts issuing the digital rupee, everyone in India will be able to use it.
By implementing the digital rupee, the RBI intends to address the issues with physical currencies and foreign trade. Currency conversions and international money transfers take a lot of time and money. It allows money transfers to improve bank cash management and operations through the digital rupee.
1. What is digital Currency?
A digital currency issued and regulated by a country’s central bank is a Central Bank Digital Currency.
2. What are the disadvantages of CDBC?
According to the RBI, CBDC may also have some risks that could affect crucial public policy matters, including the cost and accessibility of credit and threats to financial stability, monetary policy, and financial market structure. They must be carefully weighed against any potential advantages.
3. What kinds of digital currency are there?
Stablecoins, Central Bank Digital Currencies (CBDCs), and cryptocurrencies are the three primary categories of digital currency.
4. What distinguishes cryptocurrencies from digital currencies?
Digital currency only exists in digital form; nevertheless, cryptocurrency is also a type of digital currency, although decentralised. It uses cryptography and has a decentralised ledger and balance management. Blockchain technology is currently the most popular type of ledger system in the cryptocurrency industry.