Digital Currency In India

As part of developing India's next-generation financial system, the Reserve Bank of India launched the Central Bank Digital Currency of India (CBIDC) on November 1, 2022.

China, France, the USA, and Switzerland are all seeking ways to develop their own Central Bank Digital Currency, since it is not just a big deal for India, but for other developed economies as well.

There are currently no plans to roll out a retail version of the Digital Rupee in India until 2022, although the RBI's Digital Currency is anticipated to be used for the settlement of secondary market government securities transactions.

In India, e-currency can only be used for certain transactions by select banks.ICICI Bank, HDFC Bank, IDFC, Kotak Mahindra Bank, Yes Bank, and HSBC are the nine banks that can participate in the wholesale digital currency pilot project.

What is Digital Rupee/Currency?

It is a digital form of currency notes issued by the central bank. The new currency launched by RBI 2022 is called Digital Rupee. As you know, money is a physical currency. The Reserve Bank of India prints money in physical form to keep the economy going, however now the RBI will print E-Rupees as a digital currency equivalent to physical cash.In simple words, it is same as cash but in a virtual form.

All citizens and government agencies will accept digital rupees as legal tender with one-to-one exchangeability at par with physical currency. As a result, cash payments will be handled more smoothly and operational costs will be reduced.

Types of Digital Currency in India

There are two types of CBDCs issued by the Central Bank of India (CBDC):

1.. Wholesale (CBDC-W):

Limited access is available to a select group of financial institutions through this system.

2.. Retail (CBDC-R)

A CBDC for retail could potentially be used by all sectors, from the private sector to the non-financial consumer to business.

In retail CBDC, physical cash will be replaced with digital cash. Retail digital rupees will be introduced primarily for retail transactions. Since they are a direct liability of the Central Bank of India, payments and settlements will be made and processed through a secure virtual money platform.

To settle interbank and wholesale transactions, CBDC wholesale is introduced.

Why do we need Digital Currency in India?

1.. Reduced transaction costs:

With digital currency, transactions in India will get cheaper as customers can now pay directly to sellers, reducing transaction costs and enabling real-time account settlements rather than waiting a day or two.

2.. Assist in creating a safer financial environment:

The introduction of digital currency will lead to an increase in online transactions, allowing the government to better control how money leaves and enters the country, thus allowing them to devise a better budget and economic plan.

3.. Physical Cash Management:

Cash management costs have been rising year after year, according to RBI.Over the period April 1, 2021, to March 31, 2022, the cumulative cost of cash printing was Rs.4,984.80 as opposed to Rs.4,012.10 crore in April 1, 2020 to March 31, 2021.

Hence, e-currency will reduce operational costs, such as printing, transportation, and storage, and save the public wear and tear on physical notes.

4.. Innovate cross-border payments:

The RBI's digital currency would boost cross-border payments innovation by streamlining transaction processes by removing prominent obstacles such as time zone differences, legal requirements, and exchange rates.

5.. Financial Inclusion:

Since digital currency transactions cannot be conducted without a bank account and Internet connection, RBI's move will contribute significantly to the financial inclusion process.

Features of Central Bank Digital Currency

1. The RBI will issue digital currencies based on its monetary policies, and they will appear on its balance sheet as liabilities.
2. You can use it as legal tender and to make payments with it.
3. As opposed to digital money that is currently in use, CBDC would be the responsibility of the Central Bank, not the banks.
4. It is possible to convert digital currency into cash at commercial banks instead of using physical money.
5. A CBDC in India offers the public another safe fiat currency option for carrying out various transaction needs.

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