Digital Rupee is the future of money

Almost nine months after the Finance Minister, Nirmala Sitharaman first spoke about the digital currency in parliament, the digital rupee was launched in India. The pilot project launched by the RBI is for wholesale transactions in the bond market. The retail phase for the customers, however, will be launched sometime later.

Digital Rupee or CBDC is a new digital form of money issued by central banks.

The digital rupee rollout is a big step ahead in India’s digital transformation. It will be an excellent opportunity for India since it will potentially increase the ease of doing business, as well as improve resilience and security of the entire payments infrastructure.

The Reserve Bank of India (RBI) has announced that the first pilot in Digital Rupee - Retail segment is planned for launch within a month in select locations. The central bank said that nine banks -- State Bank of India (SBI), Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC -- have been identified for participation in the pilot project.

Reasons why digital rupee is the future of money

1) Centralised

Central bank digital currency (CBDC) – a new digital form of money issued by central banks – may just be the new infrastructure we need for ushering in more trust, resilience, and efficiency.

The money will be in virtual form just like other cryptocurrencies but the digital rupee will not be decentralized, but will be regulated by RBI. The digital rupee will be completely legal and acceptable by the Indian Government 

2) Ease of use

Every unit of CBDC can be uniquely identifiable and traceable. Secondly, it could be made programmable i.e., there is potential to add multiple dimensions like prescribed end uses, time limit and transferability. Finally, CBDC is recorded on blockchain-powered distributed ledgers which allows all participants / banks to record the transactions and balances.

Taken together, these three differentiating characteristics – identifiability, programmability, and distributed ledgers – can unleash a new set of economic possibilities.

3) Global acceptance

There will be no longer geographical limits with the internationalization of current and financial account transactions. “A Digital Rupee that can be held by non-residents and is available to conduct cross-border financial transactions seems a natural extension to enable new retail payment possibilities and business ventures."

4) Transparency

“The launch of Digital Rupee in India is expected to usher in more efficiency, transparency, systemic resilience and governance in our currency management system."

5) No bank account needed like that for UPI

The major advantages of the move is that one doesn't even have to open a bank account in order to transact.

 6) The payment via digital currency or rupee will be real-time

Once the digital rupee is launched the Government can easily access all transactions within authorised networks, enable real-time account settlements and ledger maintenance.

7) Likely to save operational costs of printing, distributing and storing banknotes

Digitised currency will minimise the costs involved in printing, distribution and logistics management of cash. 

“Not only will the rollout reduce the dependency on cash, it will forever remain mobile unlike currency notes."

“India’s 17% cash propensity, the ratio of cash withdrawn to GDP, is higher than those of the Nordic countries, such as UK and Australia. Moving to digital payments and digital currency could reduce dependency on cash."

8) Governments can access all transactions happening within the authorised networks

The adoption of the digital rupee is also likely to play a pivotal role in enabling easy monitoring of Direct Benefit Transfers (DBT), making them relatively faster and reducing malpractices in the payment system. Increasing the efficiency of digital transactions will surely add another dimension to digital governance.

9) Cannot get physically damaged or lost

The benefit of digital currency is that they do not get torn, burnt or physically damaged. Neither can they be physically lost. “The lifeline of a digital currency will be indefinite compared to physical notes."

10) Fraud

The Digital Rupee can help prevent fraud.The current system relies on post-facto checks to prevent fraud, CBDC could address this proactively with embedded programmability and regulated traceability.