RBI Digital Currency (CBDC) — A Complete Analysis

RBI Digital Currency (CBDC) — A Complete Analysis

Digital currency, also called cyber cash, electronic money, electronic currency, or digital money, mainly refers to currency in digital form. Simply put, it is the digital form of your physical cash. Digital currency transactions are done through an electronic wallet or a computer connected to the internet.

Usually, digital currencies do not require any intermediaries and are one of the most-efficient ways of trading currencies. Through digital currencies, you can transfer value flawlessly with less transaction cost.

On December 1, 2022, RBI launched India’s first digital rupee or Central Bank Digital Currency or CBDC in four cities — Mumbai, Bhubaneswar, Bengaluru, and New Delhi. Residents of those cities can use digital wallets offered by the partnered Bank to exchange digital rupees.

In addition, you can also do online transactions by keeping this wallet on your mobile or any such device. As per the guidelines provided by Central Bank, you can do digital rupee transactions with individual persons and merchants.

Know more about CBDC

CBDC or Central Bank Digital Currency is a legal tender delivered in digital form by the Central Bank of the respective country. It is the same as supreme paper currency but in a different form that can be exchanged with the present currency. CBDC shall be accepted as a legal tender, secured storage of value, and payment medium. According to RBI, it is a fungible legal tender “holders of which do not need a bank account.

About 100 countries worldwide are trying to explore central Bank digital currency on some or another level. Some are still researching, and some have launched digital currency on a pilot basis, as India did recently.

Types of RBI Digital Currency

According to the Central Bank of India, two kinds of digital rupee or e-Rupee will get launched in India.

• Retail or general purpose — CBDC R that will be used by business people, non-financial customers, etc.
• Wholesale — CBDC-W, which is for some financial institutions like interbank transfers.

Important Features of RBI Digital Currency or CBDC

• Currently, the central Bank has recognized eight banks for participating in the RBI’s retail digital rupee pilot project.
• Digital currency transactions can be done only through the digital wallets provided by the participating banks. The digital rupee will be available as a digital token that denotes legal tender.
• RBI will issue digital currency in similar denominations to paper currency and coins.
• All transactions of digital; currency will be done through a digital wallet on your mobile phone or other such devices.
• Distribution of digital currency will be done through participating banks, and transactions can do both with individuals and merchants.

How can you Buy Using RBI Digital Rupee?

In the first phase, RBI has chosen four banks to participate in the digital rupee pilot program: the state bank of India, ICICI bank, IDFC bank, and Yes Bank. Another four banks will join in the second phase.

These banks have already launched their app to make digital rupee transactions accessible. But before using the digital rupee for transactions, here are a few points you should keep in mind:

CUG, a closed user group, includes all participating customers and merchants, and the e-pilot covers all chosen locations in CUG. The e-rupee will be given in the same denomination as the paper currency. It’s like the digital token of the existing money that banks will distribute as an arbitrator. Even if it is digital, it will have all the same features as physical cash, such as settlement finality, trust, etc.

You can transform the digital rupee into any form of money, such as bank deposits; otherwise, it will not gain any interest. A real-time assessment of this e-rupee project will be done for the retail use of e-rupee, dissemination, and steadiness of the whole creation.

Now Let’s Know What Benefits you Get from the Digital Rupee

• It is easily convertible to cash.
• As e-rupee is a reliable legal tender, you can use it even if you do not have a bank account.
• Like cash, it can’t be destroyed through any physical damage.
• No other form of digital money can replace e-rupee.
• E-rupee is under the control of the central authority, so the risk of being volatile is very less, and it also offers safety to its user.

How is the Digital Rupee Different from Cryptocurrency?

The first and foremost difference is cryptocurrency is decentralized, and the digital rupee is under the full control of RBI, which is the central Bank of India that sets all parameters for CBDC. The value of cryptocurrency depends on the transaction volume, which fluctuates, but the digital rupee will have a fixed value.

RBI Digital Currency –A major step toward making of cashless economy

Because of the reduced use of paper currency, the Central Bank is attempting to promote a more suitable digital form of money. They are trying to put up the public’s requirement for digital currency.

CBDC can provide users benefit like liquidity, measurability, transactions, anonymity, speed settlement, and conveniences. With the adoption of CBDC, it will become easy for individuals to use as UPI did for digital currency usage.

With the usage of CBDC, there will be a major shift to a cashless economy in the coming future. Things like cross-border remittances will also increase with the growth of the digital rupee.