The e-rupee is in a virtual form and makes the payment system easier, cheaper and faster. It is intended to strengthen India’s digital economy and improve financial inclusion.
The digital rupee (e₹) is also known as central bank digital currency (CBDC)
By Tirtho Banerjee: In a historic moment, the Reserve Bank of India (RBI) rolled out India’s first digital rupee pilot for the wholesale segment on November 1. It will soon launch a similar trial on the retail side. The digital rupee (eâ‚¹) is also known as central bank digital currency (CBDC). It is a digital form of banknotes issued by the RBI.
The rollout of the digital rupee is touted as a big step towards digital transformation in India. It will dramatically change the way of doing business.
“The use case for this pilot project is the settlement of secondary market transactions in government securities,” the regulator said in a notice on Oct. 31, 2022.
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Nine banks have been identified to participate in the digital rupee wholesale pilot project. These include State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank and HSBC.
“There will be technological challenges, process challenges and the RBI will want to iron out all those aspects and introduce the CBDC in a non-disruptive way,” RBI Governor Shaktikanta Das said.
WHAT IS DIGITAL RUSH?
The digital rupee is like a banknote, but it won’t be physically tangible like paper money. The e-rupee is in a virtual form and makes the payment system easier, cheaper and faster. It will make digital transactions in electronic form transparent. Users can pay directly while saving transaction costs.
According to the RBI, “CBDC is legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable on a one-to-one basis with fiat currency. Only its shape is different. CBDC can be transacted using Blockchain-backed wallets, which makes payments final, reducing settlement risk.
The CBDC is freely convertible into physical currency, which means that digital currency can be exchanged for cash equivalent to paper notes. Unlike UPI, a customer does not need a bank account to transact using electronic rupees.
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Previously, the central bank expressed concerns about the widespread use of cryptocurrency. “The proliferation of crypto assets can pose significant money laundering and terrorist financing risks. In addition, the relentless use of crypto assets can pose a threat to monetary policy objectives as it can lead to the creation of a parallel economy and will likely undermine the transmission of monetary policy and the stability of the national currency,” he said.
The electronic rupee, having legal status, will not be decentralized and will be regulated by the RBI. The RBI explained that it would appear as a liability (currency in circulation) on a central bank’s balance sheet.
It will go hand in hand with existing forms of financial transactions and provide users with another alternative to payment.
A government source reportedly said: “In the case of a digital rupee, instead of holding a note, you will be holding a digital currency in your phone, and it would be with the central bank and from there it would be transferred to n’ any merchant. He is fully supported by the sovereign.
The RBI said the digital rupee system will “support India’s digital economy, improve financial inclusion and make monetary and payment systems more efficient.” This will go a long way in reducing the costs associated with physical cash management and boost cross-border transactions, which will help simplify cash management and banking.
Moreover, digital currency will have an unlimited lifeline as it will never be physically damaged or lost. This will mitigate the volatility risks associated with Bitcoins.
Another advantage of the electronic rupee is that it will save the operational costs of printing, distributing and storing banknotes. Since its use will reduce reliance on paper, the electronic rupee can play a huge role in saving the environment. A cashless economy is the future. And India has taken a giant step in this direction.
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