A Digital Rupee or Central Bank Digital Currency (CBDC) is a central bank-issued digital form of currency notes. It is a term used to describe an electronic version of the Indian rupee that can be used for transactions and payments. It is a form of digital currency backed by the Reserve Bank of India (RBI), the country’s central bank, to facilitate the creation of a new monetary option. The digital rupee is expected to make transactions faster, cheaper, and more efficient while reducing fraud and illegal transactions.
Finance Minister Nirmala Sitharaman announced in the Union Budget 2022 that the Reserve Bank of India (RBI) would launch its digital currency shortly. It is similar to the banknotes presently in circulation, except that the digital rupee will be transacted digitally and facilitate ease of use. The digital rupee will be a legal tender, just like physical rupees. The RBI will issue it and be available to everyone, including individuals, businesses, and government entities. The digital rupee will be stored in a digital wallet, accessed using a smartphone or a computer.
What are the Benefits of Using Digital Currency?
The launch of a digital rupee is also expected to have a significant impact on India’s economy. The purpose of digital currency in India is to provide a secure, efficient, and accessible form of digital payment to individuals, businesses, and government entities. It will make transactions faster, cheaper, and more efficient, increasing productivity and economic growth. It will also help reduce the amount of cash in circulation, which can help reduce money laundering and other illegal activities.
Here are some of the potential benefits of the Digital Rupee:
- Financial Inclusion: It could increase financial inclusion in India by providing access to digital payment services to people who do not have bank accounts or access to traditional financial services. The digital currency can be stored in a digital wallet on a smartphone, which anyone with a mobile phone can access.
- Reduce Transaction Costs: The digital rupee can potentially reduce transaction costs for businesses and individuals. Transactions can be completed instantly and at a lower cost than traditional payment methods such as bank transfers or credit cards.
- Promote Financial Stability: It could potentially promote financial stability by reducing the reliance on cash transactions, which can be difficult to track and can fuel the informal economy. Digital currency can provide greater transparency and traceability to transactions, making it easier to monitor and regulate money flow in the economy.
- Increase Efficiency: The digital rupee can potentially increase efficiency by reducing the need for physical cash handling and the associated costs and risks. Digital payments can be made anywhere and anytime, making it easier and faster to complete transactions.
How will Digital Rupee Work?
As per the RBI’s explanation, the distribution of digital currency or e-Rupee will be facilitated through intermediaries, such as banks, to both customers and merchants. The e-Rupee can be transacted through a digital wallet provided by authorised banks and stored on mobile devices. Customers will be able to make payments via e-Rupee by scanning QR codes exhibited at merchant establishments, similar to conducting online transactions.
The central bank has confirmed that digital Rupee transactions are possible between individuals (P2P) and individuals and merchants (P2M). The e-Rupee is designed to provide the same features as physical cash, including trust, safety, and settlement finality. As per the official release by RBI, similar to cash, it will not accumulate any interest and can be transformed into other monetary forms such as bank deposits.
How To Use The Digital Rupee?
Here are some potential steps that may be involved in using the digital currency:
- Download a Digital Wallet: You must download a digital wallet compatible with the currency. The wallet will be an app you can download on your smartphone or computer. Once you have downloaded the wallet, you must set up an account.
- Add Digital Rupee to your Wallet: Once you have set up your wallet, you have to add digital rupee. This can be done by linking your bank account or debit/credit card to the wallet and transferring funds.
- Make a Payment: To make a payment using the digital rupee, you will have to choose the option to pay with the digital currency within the digital wallet app. You will have to enter the amount you wish to pay and the recipient’s details. The transaction will then be processed, and the funds will be transferred from your digital wallet to the recipient’s wallet.
- Receive Payments: If you are receiving payments, you must provide the sender with your digital wallet address. Once the payment has been made, the funds will be transferred to your digital wallet.
Names of Banks and Cities to Facilitate Digital Rupee
RBI has stated that the introduction of the digital version of the rupee will take place in stages. During this pilot program’s implementation stage, participation will be limited to four sites. The banks participating in this initiative are IDFC First Bank, ICICI Bank, State Bank of India, and Yes Bank in cities like New Delhi, Bengaluru, Mumbai, and Bhubaneswar.
Moving on, the Reserve Bank of India (RBI) announced that four other institutions, namely Kotak Mahindra Bank, Bank of Baroda, Union Bank of India, and HDFC Bank, will participate in the trial. This service will soon be available in other locations in India, such as Hyderabad, Indore, Kochi, Ahmedabad, Gangtok, Guwahati, Lucknow, and Patna. At some point in the future, the facility will be expanded to other areas of the country.
The launch of the Digital Rupee has the potential to revolutionise the way transactions are carried out in India. It will make transactions faster, cheaper, and more efficient while reducing the risk of fraud and other illegal activity. It will also have significant implications for financial inclusion and India’s economy. While the launch of the digital rupee is still in its early stages, it is clear that it has the potential to be a game-changer for India’s economy.