What is Digital Rupee: The concept of ‘Digital Rupee’ has been recently announced by the Reserve Bank on October 7, 2022. The much expected and much-hyped digital money of the Reserve Bank, i.e. The pilot programme for Central Bank Digital Currency (CBDC) began on Tuesday.
What is Digital Rupee?
The Reserve Bank has chosen nine significant banks from each of the three sectors—government, private, and foreign—to participate in this pilot trial. This digital form, what is it? What distinguishes it from crypto? Will the transactions made through it be superior to UPI, which is now favoured for payment transactions, and different from them? Let’s clarify this.
Explain- What is Digital Rupee?- Prime Minister Narendra Modi described the “Digital Rupee” as the “eyes of living,” or a system that makes life simpler. This makes it possible to conduct financial transactions devoid of currency and without a bank’s involvement, like cheques or internet payments. The Reserve Bank recently disclosed the idea of how the “Digital Rupee” will seem on October 7, 2022. There are signs that the virtual money may soon be made available in a test version. However, there is interest in how the virtual currency will function. There is some ambiguity regarding how transactions would change from existing internet practises and how exactly digital rupees will differ from bitcoin or other cryptocurrencies.
Central Bank Digital Currency (CBDC) stands for Digital Rupee or e-Rupee. The digital currency will be virtually the same official currency as the official currency of the country and will be fully controlled by the Reserve Bank. CBDC is a digital form of currency notes issued by central bank. This currency offered by the Reserve Bank of India – will be known as Central Bank Digital Currency or Digital Rupee. This currency can of course be made legal tender by the Reserve Bank. CBDC can be divided into two types. Digital Rupee Retail (CBDC-R) and Wholesale (CBDC-W). Retail CBDC will be available to all and wholesale CBDC will be for specific financial institutional transactions.
In a word, digital rupee can be used for cash transactions because it is a sort of electronic money. An intermediary bank will not be involved in digital transactions, just as they are not involved in transactions involving Bitcoin or other cryptocurrencies. Like paying with cash, your digital money will be paid straight to the recipient. However, you must withdraw money from the bank, unless someone else gave it to you during a previous transaction. Similar to physical rupees, you must obtain digital rupees from the Reserve Bank or another source. The Reserve Bank will distribute such digital cash via a few commercial banks.
Key features of digital rupees will be as follows:
1) Digital currency will be issued as per the monetary policy of the Reserve Bank.
2) This currency will appear as a liability in the balance sheet of the central bank while the holder will hold this asset(s).
3) The central bank issues the digital rupee, which is a type of official currency, according to RBI Deputy Governor T. Ravi Shankar. You may exchange a digital rupee for a physical rupee because it will function just like real money and have the same value. The Digital Rupee is a cashless, contactless payment system based on SMS and QR codes that serves as an electronic coupon. To utilise this service, a user does not require a card, a payment app, or internet banking access. It is comparable to paper money. The value of a digital currency will be equivalent to that of the present one (fiat currency).
4. All citizens, corporations, and government organisations will be able to conduct transactions using digital currency in a secure manner, and these transactions will be recognised as valid uses of current fiat currencies.
5. It is simple to exchange digital rupees for bank or cash.
The advantages of digital rupees
Efficiency: The cost is lower. Transactions may also proceed more quickly. In contrast, both the cost of transaction and the cost of creating currency notes are high.
Financial Inclusion: Having a bank account is not necessary to use digital money. It might also be offline not only online.
Government monitor of digital currency will help prevent corruption. Cash transactions cannot be monitored, but digital rupees or e-Rupee can. This would somewhat reduce the parallel economy that cryptocurrency has spawned. Financial Inclusion: A bank account is not necessary to use digital currency. It might also not be online.
Monetary Policy: RBI will decide how much and when to issue Digital Rupee. It is simple to control either an excess or a deficiency of funds in the market.
Due to cryptocurrencies’ growing popularity, digital currency can aid in the prevention of money laundering and terrorist activities.
Digital currency does not have risk factors like crypto or cryptocurrencies.
We’ll now study the difference between the digital rupee and the digital payment.
The money is credited to the account of the other bank you specify during the time you make a digital payment (for instance, during the time you make a payment through Net Banking/Mobile Banking through NEFT, RTGS, IMPS, and UPI), and both of these accounts are verified by the bank before the payment is made. However, while using Digital Rupee, there is no intermediary bank. Similar to a cash transaction, the payer and taker carry out the actual transaction. In essence, notes will be replaced by digital cash.
Digital currency will be different from cryptocurrency or crypto. because the Reserve Bank created this money and it will serve as the government’s legal tender. On the other hand, no nation uses the kachlan as its official currency. The digital rupee won’t change along with the cryptocurrency’s market capitalization. Cryptocurrency is a decentralised currency that is not under anyone’s authority, whereas the Reserve Bank will have total control over the Digital Rupee.
When the digital rupee may be used, several aspects will become more evident. I Hope you better understant What is Digital Rupee? now.