RBI launched the pilot of the digital rupee for a wholesale segment and after a long time, everyone heard about the RBI launching the digital rupee.
Earlier we often hear about developed countries using digital currency, and the value of money is managed there digitally. Now this pilot initiative has also come in India, RBI launched digital currency. Before proceeding further, let us understand the meaning of digital currency.
Table of Contents
- Digital Currency?
- There will be TWO digital rupees launched in India.
- RBI launched the digital Rupee
- Banks participating in the wholesale segment. (e ₹- W)
- Difference between Digital currency & Cryptocurrency.
- Digital Rupee Benefits.
A digital rupee is a digital form of currency note issued by the central bank. Many people here may think that they are making digital payments and using digital modes of transactions. But whatever amount you have in your Paytm or bank account is available in physical form in bank accounts. Only the user uses it digitally but it is not a digital currency. Because the mode of payment is digital but the physical presence of the currency note is available in the bank.
Digital currency or the rupee is an electronic form of money, that can be used in contactless transactions. Our central bank RBI release note in the economy in the form of physical form and supplies money in the economy into ( ₹2000 or ₹500) note it has physical presence. If you are using phone pay or any UPI transaction then first connect the account with a bank account then the user transfers that amount into Paytm and does the payment but that amount is available in the bank in physical form.
RBI running a pilot to reduce the circulation of physical notes and shift to digital currency. With this Holders of money and the government can operate from anywhere. This pilot project will be beneficial for RBI, to maintain the cost of printing, paper cost, and many other costs.
Now, Presenting the Union Budget 2022, Finance Minister Nirmala Sitharaman announced that the Reserve Bank of India (RBI) would be rolling out its digital currency soon. RBI makes money and supply to the economy in digital form, which is called A central bank digital currency (CBCD).
There will be TWO digital rupees launched in India.
- Retail (CBDC-R): Retail CBDC would be potentially available for use only by all.
- Wholesale (CBDC-W): is designed for restricted access to select finical institutions.
In India, there will see two types of currency one is CENTRAL BANK DIGITAL CURRENCY (CBDC- R) and another one (CBDC- W), now the question is how it will work so if the front of the rupee symbol (e ₹- R) then it means it is a Retail. This digital currency is available for everyone one/ anyone can use it. If the front of the rupee (e ₹- W) means it’s a wholesale rupee. This one used by only specific institutions has the right to do a transaction, these institutions will be selected and authorized by RBI.
RBI launched the digital Rupee
India’s first digital rupee pilot project had been started from 1 st Nov. The reserve bank of India ( RBI ) will launch the pilot for a central – bank – digital rupee for the wholesale segment only. RBI said in their statement they commence the pilot project of the digital rupee on 1st Nov initially, it was only for to (e ₹- W) wholesale means only financial institutions can do transactions on it.
Wholesale digital rupee (e ₹- W).
Initially, it is being launched for the settlement of transactions in government securities/ bonds. RBI selected some banks which have the right to do the transaction in it (wholesale digital rupee).
Banks participating in the wholesale segment. (e ₹- W)
Nine banks have been selected: State Bank of India, Bank of Baroda, Union Bank of India, HDFC, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC first bank, and HSBC, the RBI said in a release. These nine banks have initially can-do transactions in wholesale digital rupee, and only into government securities and bonds. Suppose one of the banks buys government securities, then when they pay the payment it is only in the form of a digital rupee.
India is one of the first major economies to launch a wholesale CBDC pilot. However, we hear very often that most people want to pay in cryptocurrencies and now you are thinking that wholesale digital rupee is only for (some financial institution) then, what about us, a normal customer or(e ₹- R), retail digital rupee. So let’s understand below.
I also announced that the first pilot in the digital rupee- Retail segment is planned for launch within a month, in selected locations in closed user groups comprising customers and merchants.
As it is a pilot project, means a testing project which works on a real-time basis. To examine the problem and challenge of the project and find the way to tackle it, after that, it will be launched for everyone.
Difference between Digital currency & Cryptocurrency.
A cryptocurrency is a decentralized digital asset and medium of exchange based on blockchain technology. However, it has primarily been controversial also due to its nature – decentralized, meaning it operates without any intermediary like banks, financial institutions, or central authorities. On the other hand, the central bank digital currency (CBDC) issued by the reserve bank of India (RBI) Will be a legal tender in a digital form.
The digital rupee will be different from Bitcoin, Ethereum, and other cryptocurrencies in the sense it will be backed by the government. As lots of time we see in cryptocurrency there shows fluctuation in their value and price which normally not see in currency or manage by central financial institutions. The RBI has repeatedly expressed concern about private cryptocurrencies such as Bitcoin, Ether, and others being used for money laundering, terror financing, and tax evasion. But The CBDC has made a bridge between the benefits and risks of digital currency. To avoid the challenge of cryptocurrency.
Digital Rupee Benefits.
- Reduce The transaction cost, as you transfer your amount from one bank to another, then it transfers digitally-not physically. But it is not properly digitally because the bank holds the amount in liquid cash, so once the digital rupee will launch it helps to reduce the printing cost and many more.
- Digital currency will make it easier for government to access all transactions happing within the authorized networks. So there will be fewer chances to hack and scam.
- Hence, the government will have better control over how money leaves and enters the country, which would allow them to create a space for better budgeting and economic plans for the future, and overall a much safer environment.
- In physical currency, there would be chances of wear and tear or any type of physical damage but in digital, there is no chance of it.
In the statement, The RBI has been exploring the pros and cons of central bank digital currency (CBDC) for some time and is working towards a strategy to implement it in a phased manner.