India’s First Digital Rupee Pilot

RBI issued the country’s very first digital rupee Central Bank Digital Currency (CBDC-R) as a pilot, a landmark step in the domestic economy. It took effect from 1st December 2022.This much awaited and long envisioned electronic currency will start with a few major banks: SBI bank, ICICI bank, Yes Bank, HDFC bank and IDFC First Bank, as intermediaries in Mumbai, New Delhi, Bengaluru and Bhubaneswar alone. It would gradually spread to Ahmedabad, Lucknow, Hyderabad, Indore, Gangtok, Guwahati, Kochi, Patna and Shimla.

The Central Bank Digital Currency (CBDC) is a centralized currency, legal tender and unlike crypto currency is fixed at denominations of our physical currency. The users can pay directly while saving transaction costs. It is the same as a fiat currency and freely convertible against the physical currency already in circulation. One of the major differences between CBDCs and physical currency is that the former will have an infinite life as it cannot be damaged or lost in any physical form.

Besides other benefits for users, it will not attract interest unlike physical banks. It is usable by all institutions and people, public or private. Further, it does not require bank accounts for transactions, and is also convertible into any form for conservation or price settlement requirements. It can be transacted on a people to people (P2P) and people to merchant (P2M) basis.

It is storable in digital wallets, designated apps or banks’ official websites. People to merchant (P2M) transactions can be done via QR codes provided in respective merchant locations. Also, this e-Rupee is usable for all sorts of transactions as well as can be shared between families and friends. It is convertible into cash too via commercial banks.

And let’s see what are the disadvantages of CBDCs

1. Money kept as CBDC will not earn any interest

2. CBDC seems to be a measure of centralization where major control is taken away from intermediary banks & it destroys the credit lending power of private banks

3. CBDCs have the ability to accumulate sensitive user and payment data as it is a part of the web, it can easily be used to spy on private transactions, secure sensitive details and also indulge in cybercrimes.

The major difference between CBDCs and crypto currency is that the former is backed by a central bank, while the latter is considered like private money that is not backed by any sovereign entity. However, there is not much difference in terms of payments as in both CBDC and crypto, payment settlement happens instantaneously as money is programmable.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA