Digital Rupee – Features, Benefits and Types Explained
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.
What is Digital Rupee?
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.
Types of Digital Rupee
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.
Features of Digital Rupee
The newly introduced digital rupee has the following features:
- The Reserve Bank of India will issue the digital Rupee.
- It is a recognised, safe, and legal form of payment by all people, companies and Governmental institutions.
- The issuance of the digital Rupee will be aligned with the central bank’s financial policy.
- Digital rupee holders can freely convert it to cash through a commercial bank.
- It is expected to reduce the costs of transactions and those associated with currency printing.
- CBDC is fungible legal money and can be used by anyone, regardless of whether they have a bank account.
Benefits of Digital Rupee
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.
Also Read
How will the Digital Rupee Work?
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.
List of Banks and Cities Eligible for Digital Rupee
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:
- State Bank of India
- Yes Bank
- ICICI Bank
- IDFC Bank
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.
How is the Digital Rupee Different from Cryptocurrency?
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.
Final Word
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.
FAQs
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.
Before you go…
- Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Get personal loans up to ₹20 lakh starting at 9.9% p.a. Install the Navi app now!!
- Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to ₹5 crore. Install the Navi app now and get instant in-principle approval right away! Interest rates starting at 8.74% p.a.
- How about an affordable health insurance policy👨⚕️ starting at a monthly premium of just ₹235? Install the Navi app now and get your policy in under 2 minutes.
- Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
