The Digital Rupee and Cryptocurrency Conundrum
The currency notes that the central bank has produced in digital format are referred to as the “digital rupee,” also known as “Central Bank Digital Currency” (CBDC). It is just like currency, but because it is digital, it is simpler, faster, and less expensive. It also offers all the transactional advantages that other digital payment systems offer.
The State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank are the four banks from certain regions with which the RBI has cooperated. This new pilot’s initial focus will be on the closed user group (CUG), which is made up of participating customers and businesses.
The e-Rupee proposed by the RBI would take the form of a digital token that serves as legal tender and will be distributed in the same denominations as coins and paper money currently are. Banks will act as mediators in the distribution of India’s first digital rupee.
The Digital Rupee
The RBI’s CBDC is designed to provide yet another way to use money. The only thing that makes it different from the banknotes that are already in use is that more digital transactions are expected to be conducted using the digital rupee.
The RBI’s digital currency is the name for a central bank’s digitally issued legal tender (CBDC). The sovereign electronic currency will appear as a liability on the balance sheet of the central bank. It is identical to fiat money and can be used interchangeably with it.
How will it Work?
The e-rupee will be supplied in two different forms: wholesale for use in interbank settlements and retail for general consumption. Even though the RBI issues digital currency, commercial banks can disseminate it. E-rupees will be disseminated to the general public through a token-based method. The individual sending the virtual currency must be aware of the recipient’s public key. The public key and the recipient’s private key are both required to complete the transfer.
The likelihood of partially anonymous transactions is high; those involving bigger sums might be subject to disclosure requirements, whilst smaller-scale transactions might be entirely anonymous.
The RBI notice states that keeping it in an e-wallet provided by a bank or other authorised service provider is also required.
The Difference
The accepted cryptocurrency by the RBI is the digital rupee, which has been repeatedly repudiated by the institution and described as a severe threat to the stability of the nation’s financial system.
The CDBC is advertised as being safer than private cryptocurrencies since it is a digital version of a sovereign currency. Here is how they will differ.
Digital Rupee is Central Bank Digital Currency (CBDC), which is backed by the nation’s central bank, as opposed to cryptocurrencies, which are based on the blockchain. The primary goal of the launch of the digital rupee is to eliminate market-based cash. While the value of cryptocurrencies is based on market conditions, this is not the case with digital rupees, which is another significant distinction between the two. Its worth does not change over time, exactly like currency.
The Reserve Bank of India’s official form of money is the CBDC. According to the regulator, the CBDC, also known as the Digital Rupee or e-Rupee, issued by the RBI, is interchangeable 1:1 with fiat money and functions similarly to a sovereign currency.
Cryptocurrencies are unaffected by influence from any central body or government. However, they have had a very awkward relationship with the Indian government.
The digital rupee will serve the same purpose as the widely recognised digital rupee, which is a currency that the RBI creates, but it won’t be a decentralised asset like cryptocurrencies. The currency known as the “digital rupee” will be produced by the central banks in charge of overseeing and administering the asset.
You can use the virtual rupee as legal tender to make purchases of any kind. Examples of digital rupees include digital wallets, NEFT, and IMPS. Therefore, everyone in India will be able to utilise the digital rupee whenever the RBI begins to issue it.
Conclusion
The RBI’s decision to introduce a digital rupee is primarily intended to advance India in the race for virtual money. And, of course, since cryptocurrencies are becoming more and more important.
The digital rupee will become more efficient and transparent thanks to blockchain technology. The payment system will be accessible to both wholesale and retail consumers around-the-clock, promoting economic growth and allowing Indian customers to pay directly. Other benefits include quicker account settlements and cheaper transaction costs. To use a digital rupee, you don’t need to open a bank account.
Since the RBI will support it, unlike with cryptocurrencies, there is no risk of volatility.
In contrast to paper money, the digital rupee
