The Official Crypto
The Reserve Bank of India (RBI) has drawn up its plans to launch a Central Bank Digital Currency (CBDC) or a digital version of the rupee, which was in the works for almost a year. The apex bank has floated a concept note on the CBDC examining its implications on the banking system, monetary policy and financial stability. It will soon start pilot launches of the digital rupee for specific use cases. The e-rupee will be released in two forms: wholesale for interbank settlements and retail for the public. Commercial banks can distribute the currency further. One has to hold it in an e-wallet provided by a bank or a registered service provider.
‘The CBDC, being a sovereign currency, holds unique advantages of central bank money viz. trust, safety, liquidity, settlement finality and integrity,’ the RBI said, adding that the key motivation for exploring the digital rupee was the reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, innovation in the payments system, and so on. The use of offline features in the CBDC will also be useful in remote locations and offer availability and resilience benefits when electricity or a mobile network is not available.
The e-rupee has a unique feature: it can be ‘programmed’ by tying up the end use in specific ways. For example, agriculture credit by banks can be programmed
One has to hold the digital currency in an e-wallet provided by a bank or a registered service provider
to be used only at input store outlets. The RBI is exploring the option of an accountbased digital currency (where transactions could be traced) for wholesale transactions and a token-based version (where only verification takes place) for retail. The architecture to implement all this has not been finalised yet. It could either be a distributed ledger technology like blockchain, a centralised one, or a hybrid (open source/ proprietary) architecture. The currency will also need to comply with money laundering and terror financing norms.
The e-rupee’s advent comes when India has already made big strides on the digital payments front—with the pandemic accelerating its adoption. In 2021-22, UPI (Unified Payments Interface, an instant real-time payment system) processed more than 46 billion transactions amounting to over Rs 84 lakh crore. Experts think the concept note has come a bit late in the day, and the CBDC will not be able to make any significant change in the way digital transactions occur in the country. “Digital transactions are growing exponentially through UPI and a host of apps such as Paytm and Google Pay. There is not much more that the CDBC can achieve,” says Kunal Nandwani, co-founder and CEO, uTrade Solutions, a fintech firm. Digital currencies haven’t had much traction in countries where they have been launched, he adds.
The move also comes at a time when India is working on a bill to regulate private digital currencies such as cryptocurrencies. This, then, is the official crypto. ■