The evolution of digital payments in India started with UPI and is characterised by the extensive penetration of digital payments across the retail sector. The Government and RBI have now taken a step further toward a cashless economy with the launch of the Digital Rupee. The digital Rupee was launched on November 1, 2022 for the wholesale segment by the Reserve bank of India. A pilot for the retail segment followed on December 1, 2022.Read on to learn about the benefits of the digital rupee, its features, and more.
Digital rupee, also known as the Central Bank Digital Currency (CBDC), is the electronic form of the physical currency notes. It is a risk-free, centrally acknowledged sovereign currency launched to reduce the use of physical currency notes.
This move aims to enable contactless transactions and reduce printing costs associated with physical money. It is available in the same denominations as the physical notes.
There are two types of digital rupee, one for the retail segment and another for wholesale.
The retail CBDC is denoted by (CBDC-R) and will be available to the general public. This includes non-financial businesses and consumers and all private sector entities. The retail CBDC can be regarded as the digital alternative to cash and will be used primarily for retail transactions.
On the other hand, the wholesale CBDC or (CBDC-W) will be available only for some financial institutions. It will be used to settle interbank transfers and associated wholesale transactions. CBDC-W will also help revolutionise the settlement system used for Government securities and capital markets.
The newly introduced digital rupee has the following features:
Reducing printing and transaction costs is the primary benefit of the digital Rupee. Additionally, it can help the Government to track all transactions and take action based on the applicable law. This way, the Government can identify the illegal movement of money in and out of the county.
Also, understanding the total inflow and outflow of money will enable the Government to budget better and develop economic plans based on the situation.
Digital currency is free of the risk of getting lost or damaged, unlike physical currency. The move will help make payments safer and more seamless.
In the pilot phase, the digital currency will be available for purchase by the State Bank of India, Yes Bank, ICICI Bank and IDFC bank. However, users must download a digital wallet on their mobile device to store and use the digital rupee. It can be used to transfer money from person to person or may bill payments to a merchant.
Users can make merchant payments using the digital currency via QR codes. The digital rupee is just like physical cash and doesn’t attract interest. It can be exchanged for physical currency or transferred to a savings or deposit account at any time.
The Reserve bank of India is adopting a stepwise approach to the launch of digital currency. It will look out for issues in the pilot phase and roll out features and applications based on the learnings. Only 4 banks are participating in the first phase of the pilot. They are:
The next phase will include four more banks viz. Bank of Baroda, Kotak Mahindra Bank, Union Bank of India, and HDFC Bank.
The next phase will extend this to Ahmedabad, Hyderabad, Indore, Lucknow, Guwahati, Gangtok, Shimla, Patna, and Kochi.
The dates for introducing the service to other banks and cities have not been announced yet.
While the digital rupee is also based on blockchain technology, the primary difference between the digital rupee and cryptocurrency is that cryptocurrency is decentralised. This means that no central authorities, banks, or financial institutions govern cryptocurrencies.
The digital Rupee on the other hand, is a legal tender that the Reserve Bank of India issues and controls. The Government will have full control over CBDC and holding the digital rupee will work the same as holding cash.
The digital Rupee is a revolutionary addition by the Government of India and the RBI to digitise India’s currency system. It will strengthen the wave of digitisation in the country and make way for safer and low-cost transactions. The phase-wise adoption of the currency is a great way to take small steps towards a good financial future of the country.
Ans. Since the central bank and Government back the digital rupee, it is safe and can be trusted the same as physical money.
Ans. The Government has introduced digital money to move towards contactless transactions and a cashless economy. The objective is also to ensure safer transactions, track the movements of money in and out of the country, and reduce the costs associated with issuing money.
Ans. The launch of the digital rupee is currently in its first phase. Interested users can reach out to SBI, IDFC bank, ICICI bank, or Yes bank in the first phase to access the digital rupee. They will have to download a digital wallet app on their phone to store it.
Ans. At this moment, there is no clarity on what the future of the digital rupee entails. However, it will just be an additional legal currency to physical money and not replace it anytime soon.
Ans. No, the digital rupee is based on blockchain technology and online transactions do not go through a bank. The RBI will be the guarantor for these transactions on the blockchain.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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