Understanding digital rupee and how RBI plans to launch it
India's own Central Bank Digital Currency (CBDC) or digital rupee could soon see the light of day. A concept note released by the Reserve Bank of India (RBI) for CBDC spoke in depth about the much-anticipated currency. The digital rupee will be implemented in a phased manner, said the note. It also spoke about the objectives, choices, benefits, and risks of CBDCs.
Why does this story matter?
Ever since the Indian government announced its plans to introduce a CBDC, the market has been waiting to hear more about it. Now, with China closer than ever to introduce e-Yuan, RBI has decided to speak about the digital rupee. The introduction of e-Rupee could potentially lead to a sound regulatory framework of digital assets, enhancing the country's chances of developing a robust ecosystem.
CBDC will go through various stages of pilots
CBDC projects around the world are either under development or in pilot stages. The lack of precedents means extensive consultation with stakeholders before the currency's launch. Therefore, RBI will go for a phased implementation of CBDC in the country with various stages of pilots followed by a final launch. The central bank is examining cases where it can be implemented with minimal disruption.
CBDC is the next step in sovereign currency's evolution
The digital rupee will have the same value as fiat currency and it will serve as an additional source of currency. The paper states, "CBDCs are being seen as a promising invention and as the next step in the evolutionary progression of sovereign currency." The central bank aims to make payments more efficient, robust, and trusted with CBDC.
CBDC is risk-free and will provide legitmiate benefits
No discussions about CBDCs will be complete without talking about cryptocurrency. RBI's concept note said that the unfettered use of cryptocurrencies poses a risk to India's macroeconomic stability. It also expressed concerns about crypto being used for money laundering and to finance terrorism. With CBDC, the public will get a risk-free virtual currency with legitimate benefits, said RBI.
RBI is considering the release of two kinds of CBDC
RBI is planning to release two kinds of CBDC: one that would be used by the citizens to make retail payments and another that would be used for much larger transactions and for settling transfers between banks. The digital rupee will be fungible and users will not need a bank account to use them. It will be a medium of payment and legal tender.
RBI expressed privacy concerns about CBDC
In the concept paper, RBI seems confident in CBDC's potential. However, the central bank expressed its concerns about privacy while using the e-Rupee. It wrote, "the potential for [an] anonymous digital currency to facilitate [a] shadow-economy and illegal transactions make it highly unlikely that any CBDC would be designed to fully match the levels of anonymity and privacy currently available with physical cash."
