Indian CBDC Launch Update

    Simar Marwaha
    Simar Marwaha
    Published on December 21, 2022 6:04 PM

    Updated on January 10, 2023 2:14 PM

    The RBI hopes to solve issues with current physical currency and international trade by adopting the digital rupee. Let's study this critically.
    Indian CBDC Launch Update
    Source: Unsplash

    The pilot programme for the Reserve Bank of India's central bank digital currency (CBDC), which it classifies as digital legal tender, is about to begin. It will be exchangeable at par with other currencies, be commonly referred to as the "digital rupee," and be accepted for payments and a secure place to keep value.

    The RBI's CBDC, also known as the "e₹" or "the digital rupee," is a new way to utilise money that isn't much different from the banknotes that are already in circulation. The main difference is that the digital rupee is intended to be used more easily and to be transacted online.

    The accepted cryptocurrency by the RBI is the digital rupee, which the central bank has repeatedly denounced as posing a severe threat to the stability of the nation's financial system. The CDBC is advertised as being safer than private cryptocurrencies since it is a digital version of a sovereign currency. Here is how they will differ.

    The RBI has selected nine banks to take part in the wholesale Digital Rupee pilot project, including State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank, and HSBC.

    Also read: India's CBDC: All you need to know

    When India assumes the G-20 group leadership for a year, beginning on December 1, 2022, and ending on November 30, 2023, it will play a significant role in establishing global crypto policy. Cryptocurrency will be on the table, according to Nirmala Sitharaman, the country's finance minister.

    According to Sitharaman, after holding meetings with G-20 members and institutes based on their studies and research on the subject, she hopes to develop a framework or standard operating procedure. "We would definitely want to compile all of this, do some research, and then bring it to the G-20 table so that members can discuss it and hopefully come up with a framework or SOP (standard operating procedure) so that globally, countries can have a technology-driven regulatory framework," she said.

    The issues posed by cryptocurrencies were the focus of Indian Prime Minister Narendra Modi's call for international collaboration in January 2022. Later in July, the Finance Minister reiterated the RBI's well-known position before parliament—that cryptocurrencies should be banned to prevent having a destabilising impact on monetary and fiscal stability—while asserting that no legislation is conceivable without major international involvement.

    Cryptocurrencies Vs Digital Rupee

    A CBDC is a kind of legal money that is issued in digital form by a central bank, according to the RBI. It is interchangeable one-to-one with fiat cash and is the same as fiat currency. Its only distinction is in form. A CBDC, however, cannot be directly compared to a cryptocurrency.

    A CBDC is not a commodity or a claim on a commodity or digital asset, unlike cryptocurrencies. The issuer of cryptocurrency is absent. As stated in the RBI statement, "They are not money (definitely not currency) as the term has come to be understood historically.

    The CBDC, which should be exchangeable for cash, is the digital representation of paper money issued by central banks like the RBI. The digital rupee will serve the same purpose as the well recognised digital rupee, which is a currency that the RBI creates, but it won't be a decentralised asset like cryptocurrencies. The currency known as the "digital rupee" will be produced by the central banks in charge of overseeing and administering the asset.

    You can use the virtual rupee as legal money to make purchases of any kind. Examples of digital rupees include digital wallets, NEFT, and IMPS. Therefore, everyone in India will be able to utilise the digital rupee whenever the RBI begins to issue it.

    Characteristics of the Digital Rupee

    1. The central banks that issue CBDC do so in accordance with their monetary policies.
    2. On the balance sheet of the central bank, it shows as a liability.
    3. It must be acknowledged by all individuals, businesses, and governmental organisations as a form of payment, legal tender, and secure store of value.
    4. Cash and commercial bank currency can be readily exchanged for CBDC.
    5. CBDC is a fungible legal money for which holders need not have a bank account.
    6. The CBDC is anticipated to reduce the expense of currency issue and transactional fees.

    Potential CBDC introduction types

    General purpose or retail (CBDC-R) and wholesale (CBDC-W) are the two categories into which the Central Bank Digital Currency may be divided. Everyone, including the private sector, non-financial customers, and enterprises, can utilise retail CBDC. Wholesale CBDC is intended to only be accessed by a small number of financial institutions.

    The wholesale CBDC is created for the settlement of interbank transfers and related wholesale transactions, whereas the retail CBDC is an electronic equivalent of cash primarily intended for retail transactions.

    "Given that retail CBDC is a direct obligation of the central bank, it is thought that it can give users access to secure money for payments and settlement. Wholesale CBDC has the ability to improve the security and efficiency of financial transaction settlement systems. Considering the potential each of them offers, there may be justification for introducing both CBDC-W and CBDC-R" In the concept note, RBI stated.

    Is the Digital Rupee Necessary?

    The RBI's decision to introduce a digital rupee is primarily intended to advance India in the race for virtual money. And, of course, since cryptocurrencies are becoming more and more important. But can CBDCs step up their game in the face of a massive payment system like UPI? Cash continues to be the preferred method of payment for obtaining funds for monthly costs, according to a poll by the RBI. Cash is mostly utilised for low value transactions (amounts up to INR 500).

    Among other things, lowering operational costs associated with physical cash management, promoting financial inclusion, bringing resilience, efficiency, and innovation to the payments system, enhancing the efficiency of the settlement system, and encouraging innovation are the main drivers for considering the issuance of CBDC in India. The function of public fiat in monetary policy, which secures the role of central banks in preserving financial stability on their markets, might be preserved with the aid of CBDCs.

    To prevent bank collapses and bank runs, the modern banking system requires a complex system of bank regulation. A banking catastrophe is more probable than a government collapse. A run on a CBDC is unquestionably far less likely. A CBDC can thereby support banking system financial stability.

    India's CBDC FAQs

    Does India have CBDC?

    The RBI's Central Bank Digital Currency (CBDC) pilot programme for the retail market includes elements built on the blockchain technology. On October 7, 2022, the Reserve Bank of India (RBI) released a concept note on Central Bank Digital Currency (CBDC).

    Is Indian currency backed by anything?

    According to Section 33 of the RBI Act, 1934, all banknotes issued by the RBI are backed by assets like gold, government securities, and foreign currency assets.

    Is CBDC a threat to cryptocurrency?

    In fact, by certifying the underlying blockchain technology, central bank digital currencies (CBDCs) would assist increase trust among sceptics rather than endanger cryptocurrencies.

    How CBDC will work in India?

    The Reserve Bank of India is getting ready to start using its central bank digital currency (CBDC), which it classifies as money in the digital form of legal tender. It will be exchangeable at par with current currencies, accepted for payments, and regarded as a secure store of value. It is sometimes referred to as the "digital rupee."

    Is Bitcoin a form of CBDC?

    A CBDC may be thought of as simple digital money, whereas cryptocurrencies are digital assets on a distributed network. CBDC is a legal money that is issued in digital form by a central bank, according to the Reserve Bank of India.

    What is CBDC in India?

    The central banks that issue CBDC do so in accordance with their monetary policies. On the balance sheet of the central bank, it shows as a liability. It must be acknowledged by all individuals, businesses, and governmental organisations as a form of payment, legal tender, and secure store of value.