The Reserve Bank of India (RBI) said that the first pilot in the Digital Rupee, Wholesale segment (e?-W) will commence on November 1, 2022.
- It also announced that the first pilot in the Digital Rupee – Retail segment is planned for launch within a month in select locations in closed user groups comprising customers and merchants.
What is Digital Rupee?
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- A Central Bank Digital Currency (CBDC) or Digital Rupee is a digital form of currency notes issued by a central bank.
- It is an electronic form of money that can be used in contactless transactions.
- It can be defined as the legal tender issued by the Reserve Bank of India.
- Background: Presenting Union Budget 2022, Finance Minister Nirmala Sitharaman announced that the Reserve Bank of India (RBI) would be rolling out its digital currency soon.
- Types : CBDC can be classified into two types
- Retail (CBDC-R): Retail CBDC would be potentially available for use by all
- Wholesale (CBDC-W) is designed for restricted access to select financial institutions.
- Benefits : the digital rupee system will “bolster India’s digital economy, enhance financial inclusion, and make the monetary and payment systems more efficient.”
- It will reduce the transaction cost, having a digitised currency will make it easier for governments to access all transactions happening within the authorised networks.
- The lifeline of a digital currency will be indefinite compared to physical notes
- “CBDC is aimed to complement, rather than replace, current forms of money and is envisaged to provide an additional payment avenue to users, not to replace the existing payment systems.
- Risks in adopting digital currencies
- Cyber hacks and threats
- Threat to privacy
Difference between digital rupee and cryptocurrency
- Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot
- To build a CBDC ecosystem and make it sustainable, it is essential to address all existing issues and for CBDC to act as a tool for inclusion by solving the problems through innovation.
- There is also a need for strong cooperation between government agencies and regulatory bodies so that a balance is maintained and a proper data or information collection framework is implemented that oversees the ecosystem.