The Reserve Bank of India has launched the pilot project revolving India’s first digital rupee. Digital rupee or Central Bank Digital Currency is issued by the central bank or the Reserve Bank of India and it represents the currency notes in the digitised form. There are no major differences between the Central Bank Digital Currency and the bank notes. However, the digitised form of the currency notes is likely to make the entire process of transaction cheaper, faster as well as easier. There are several other benefits associated with the process of transaction of the digital rupee.
The digital currency and the payment system
Central Bank Digital Currency involves transactions which are carried out in the digital mode unlike the physical rupee which is physically tangible. The generation of the digital rupee, an initiative of the Reserve Bank of India for strengthening the digital economy of India, will be through an advanced payment system which will be affordable, safe and secure and also accessible.
However, the whole idea of a digital currency system found its way out in order to complement the financial transaction system that already exists instead of replacing it. An additional option shall be provided to users for making payments and at the time the existing payment system shall continue to remain in its own place. This clearly states the fact that the general usage of the currency system shall not be affected by the digital currency system.
Cryptocurrency vs digital currency
Unlike the cryptocurrencies, the digital currency shall not be decentralised. The regulation of the digital currencies shall be in the hands of the Reserve Bank of India. The digital currency shall be acceptable to the Indian Government and shall also be legal.
Cryptocurrencies are not exactly money unlike the digital currencies. The digital currency which has been ideated by the Reserve Bank of India can be exchanged for cash which is equivalent to the banknotes that are issued by the Reserve Bank of India in the form of paper. The Central Bank Digital Currency shall continue to be issued by the Reserve Bank of India and they shall continue to serve the function as the bank notes.
Both the digital currency and the cryptocurrency use the online transaction modes. There are slight differences between the two. Digital currency is regulated by the government and the central bank and the value of the currencies are set by them. The value of cryptocurrencies on the other hand is not regulated by the authorities of the central bank and is completely independent. The process of transaction is a transparent one right from mining to ownership and asset transfer.
Taking the first step
The main motive of the Reserve Bank of India in launching the project of digital currencies is to help India in its race for the virtual currencies. Using a digital rupee shall speed up the process of cross-border transactions and the need to open a bank account shall not arise. The use of digital currency shall foster the growth process of the digital economy of the country. The very first phase of the project on digital currency shall cover four major cities which includes New Delhi, Mumbai, Bhubaneswar and Bengaluru. The banks that will be participating in the first phase are State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank. Transactions can be carried out through a digital wallet that will be offered by the banks who are participating.
The use of digital currency hopes to quell the disadvantages that are faced while using the cryptocurrencies. It hopes to cut down on the costs involved in the operation while handling physical cash and bring about efficiency in the payment system. It also aims to innovate the processes associated with cross-border transactions.