Written by: Dr. Rita Madanlal Shetiya
Ambassador of Grace Ladies Organization
Lecturer, Journalist, Trekker, Photographer, Anchor
Location: Pune, Maharashtra – India
Published at: Grace Ladies Random Thoughts Diary
Money/currency acts as a medium of exchange. While doing financial transactions, we have to use the currencies of different countries globally. The central bank of any country controls this currency. Dollar is more important in international trade. A recent alternative to such currency is the “Central Bank Digital Currency”, in essence a virtual currency. “In FY 2022-23, the Reserve Bank of India will introduce such a digital rupee using block chain and other technologies,” announced by the Finance Minister.
What is Digital Rupee?
A digital rupee (currency) is a form of virtual currency, i.e. not in the form of notes or coins. This currency will be like money in your account, which can be used in contactless transactions but cannot be used to buy goods directly in stores. A digital currency is basically a payment system in which digital transactions take place in electronic form and are not physically tangible like rupees.
Objective to bring Digital Rupee
The Digital Rupee envisioned by the RBI will be created through an advanced payment system that is affordable, accessible, convenient, efficient, flexible and secure and aims to further promote the digital economy. The Reserve Bank of India (RBI) has launched a pilot and transparent project on digital currency. The main objective is to take India forward in the race of virtual currencies.
Central Bank Digital Currency (CBDC) can be classified into two types.
1) Retail (CBDC-R): Retail CBDC will potentially be available for use by all.
2) Wholesale (CBDC-W): It is designed for restricted access to selected financial institutions.
Difference between Digital Rupee and Crypto currency
Crypto currency is a decentralized digital asset and medium of exchange based on block chain technology. However, it has been controversial mainly due to its decentralized nature. This means it can be operated without any intermediaries like banks, financial institutions or central authorities. In contrast, Central Bank Digital Currency (CBDC) issued by the Reserve Bank of India (RBI) will be legal tender in digital form. Crypto currency is a type of digital currency, but it is managed on a global level rather than by any central bank or government. Hence it is also called Decentralized Financial Tokens or DeFi. It basically aims to create a single currency across the world without the control of any central organization.
Bit coin, Ethereum, Tether, Binance, Doge coin are the most prominent and famous examples of this. The value of this crypto currency can be in millions. This means that a bit coin is worth millions, but since no one has direct control over this value, it is erratic and can go up and down at any time. Currently more and more Indians are getting attracted to Bit coin or other similar crypto currencies. There are many exchanges established in India that deal in Bit coin, but these transactions are often done in foreign currency. It is often used to purchase expensive items such as art collections to luxury cars and even non-fungible tokens (NFT) on the Internet. But nobody is in control as crypto currencies are used on the dark web for everything from weapons purchases to drugs and other illegal activities. Therefore, as an alternative to this, Central Bank Digital Currency RBI has decided to bring.
Advantages of Digital Rupee (Central Bank Digital Currency)
1. Centralized: Central Bank Digital Currencies (CBDCs) – New Digital Forms of Money Issued by Central Banks – Govt., R. B. i. And the public will have the new infrastructure needed to bring greater trust, flexibility and efficiency. Prosetz Exchange founder and director Manoj Dalmia said in a media report that while the rupee will bevirtual like other crypto currencies, the digital rupee will not be centralized, but will be controlled by the Reserve Bank of India (RBI). The Digital Rupee will be fully legal and acceptable to the Government of India.
2. Low cost and easy to use: RBI has to print notes continuously. Coins have to be made available. Notes tear, get damaged while handling. Something is written on those notes and then they cannot be used. Digital currency will reduce the cost of printing, distribution and logistics management of cash. This will not only reduce the dependence on cash, but like currency notes, it will remain mobile forever. According to experts, the shift to digital payments and digital currency can reduce dependence on cash.
3. Online financial transactions: After the corona period, the importance of online financial transactions started to be realized. Nowadays everyone has a payment wallet in their mobile phone. Apart from this, financial transactions can also be done through separate ATMs of banks. As the next step in this chain, the first goes to digital currency or ‘digital rupee’.
4. Prevent Risks and Malpractices: To prevent risks and malpractices in Bitcoin or Crypto Currency, the first go to ‘Digital Rupee’. Transparency in financial transactions will be the first to go to Digital Rupee as the most important issue. Black money, tax evasion, corruption, financial transactions through hawala is seen in large scale, cash is paid while buying gold and silver. Because of this, the government does not know how much money anyone has. Because currency notes can be hidden. The government can be cheated. But with e-currency, the government can know exactly how much money is going to whom. But due to e-currency, the government will keep an eye on the financial transactions. This will also make tax evasion very difficult. The taxation system will be strengthened. Not only the income tax but also the income from GST will increase. This will certainly benefit the government and the general public. RBI data shows that from 2018 to 2020, Indian banks lost around $50 billion due to fraud. Digital currency can proactively address these issues with established programmability and regulated traceability.
5. Direct transactions: E-currency will reduce cash withdrawals and deposits from the bank. There will be no need to queue up at the bank. Digital currency does not need to be kept in a bank. We can keep this currency in mobile like digilocker. Even if a payment wallet is used today, it has to be linked to a bank account. These transactions are done through the bank. But this is not the case with e-currency. We can deal directly. For example; In the United Arab Emirates, employees receive 50 percent of their salary in the form of digital money. So these employees can send money to their families easily and without any extra charges. The same can happen in India.
6. Less expensive and time saving: Financial transactions through CBDC can be less expensive and time saving as compared to other digital transaction options. Traders importing into India will be able to remit direct remittances in dollars to exporters in any country through CBDC. There will be no need for a bank or any other medium for this. Digital Rupee will not require a bank account. The e-currency will also have the same value as currency notes. This kind of digital currency will make the dream of a cash free economy a reality. Of course, he needs the support of the citizens. They should use these options diligently. Using this type of currency is not only convenient for us, but it will be in the interest of the country, especially our economy.
7. Global acceptance: With the internationalization of current and financial account transactions, there are no longer any geographical boundaries. A digital rupee held by non-resident Indians and available for cross-border financial transactions seems to be a natural extension to enable new retail payment possibilities and business ventures,” said Dalmia. “One hundred and five countries have accepted such a currency.
8. Cannot be damaged or lost: The advantage of digital currency is that it cannot be torn, burned or physically damaged. Nor can it be lost. “The lifespan of digital currency will be uncertain compared to physical notes,”
9. Immediate Impact on Monetary Policy: The digital rupee will further empower the RBI by providing a direct tool to control monetary policy. The use of the digital rupee will give the RBI the power to directly create and supply money, allowing the effects of policy changes to be seen immediately, whereas until now the RBI was dependent on commercial banks to implement its policy decisions.
Conclusion : A digital rupee backed by the Reserve Bank of India or the Government of India will empower Indian citizens and help them find their place in the fast-growing global digital economy. Along with this, Indian citizens will also get freedom from the old banking system of the country and will add a new dimension to India’s banking model. Given the impact of the digital rupee on liquidity in the economy, banking system and financial markets, etc., India’s policymakers need to seriously consider the possibilities of a government-backed digital currency in India. India is already looking to prepare for the possibility of a digital currency war between China and the US in the near future, so India may also face international tensions if it launches its own digital currency.