After months of anticipation, the Reserve Bank of India (RBI) on Tuesday said that it would launch its first pilot for retail digital Rupee, or e₹-R, on December 1. The central bank-backed Central Bank Digital Currency (CBDC), which is similar to cryptocurrency to some extent, will be for retail users.  

There has been a lot of buzz around the concept of cryptocurrencies, CBDC, and digital currencies. A central bank digital currency can be described as the digital form of a country’s fiat currency, whereas a cryptocurrency is also a digital currency, which is an alternative form of payment with unique encryption algorithms. In layman’s terms, a CBDC is simply digital fiat, whereas cryptocurrencies are digital assets on a decentralised network.   

What is Digital Rupee or e₹-R? 

The Reserve Bank of India has defined the e-Rupee as a form of digital token that represents legal tender. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency, and unlike cryptocurrencies, the digital Rupee is issued in the same denominations as paper currency and coins. 

How will it work? 

The e₹-R, which will be released on December 1, will be a digital token that represents legal tender. It will be issued in the same denominations as paper currency and coins and will be distributed through intermediaries, here it is banks. 

2. As per the central bank, users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones and devices. 

3. The transactions in digital Rupee can take place between Person to Person (P2P) and Person to Merchant (P2M), as per RBI’s statement. 

4. Payments to merchants can be made using QR codes displayed at merchant locations, just like customers do for Paytm or Google Pay. “The e₹-R would offer features of physical cash like trust, safety, and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks,” the RBI said. 

5. The pilot will kickstart in four banks – State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank – in four cities, including Mumbai, New Delhi, Bengaluru and Bhubaneswar.  

6. Four other banks – Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank – will join this pilot eventually and it would also be extended to other cities such as Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. 

“The Reserve Bank of India’s (RBI) Central Bank Digital Currency (CBDC) aims to fulfill the promise of affordable, safer, and easier payments for all. Since it provides a regulated alternative to cryptocurrencies in the market, the CBDC would lead to more robust and reliable payments, lowering the dependency on cash. The underpinning technology would make transaction costs low. Being interoperable with other payment systems, it will complement existing techniques like UPI, thus completing the mobile payments ecosystem,” said Jaya Vaidhyanathan, CEO, BCT Digital.  

What’s expected? 

As per sector experts, India’s CBDC initiative is very much in line with its recent digitalisation efforts worldwide. India is one of the few countries that have launched its own CBDC. Globally, many nations, such as China, Ghana, Jamaica, and some European countries are exploring their CBDC products. Some have even launched their digital currencies. There are nine countries that have fully launched their CBDCs. Eight of the nine countries are located in the Caribbean. The Sand Dollar of the Bahamas was the first CBDC of the world, which was launched in 2019. 

“The digital rupee (e₹-R) will provide better security, traceability, and accountability for the movement of money through the world’s 5th largest economy. Instead of a distributed ledger, the e ₹-R will get regulated by the RBI, providing legal cover and stability to the digital currency. Since the digital asset is backed by a sovereign institution and can get tracked, it should reduce the excessive fraud inflicted upon UPI users because these funds become untraceable once they are taken out of the banking system,” said Anirudh A. Damani, Founder of Artha Group. 

The retail digital currency, which will be launched on December 1, will be distributed through a two-tier model. The central bank will first issue to it the chosen banks. The banks will further distribute currency into the hands of consumers. “The introduction of the Digital Rupee in India is anticipated to improve our currency management system’s efficiency, transparency, systemic resilience, and governance. One of the main advantages of the change is that transactions can be completed without even opening a bank account. The government would be able to quickly view all transactions occurring within authorized networks, facilitate real-time account settlements, and maintain ledgers once the digital rupee is released,” said Rajeev Yadav, MD & CEO, Fincare Small Finance Bank. 

“CBDC-backed currencies are a logical next step in the journey of digital currencies. It eliminates several of the inefficiencies which mar cryptocurrencies by providing stability and comfort with the backing of the central bank (RBI). CBDC will further be a positive step towards the adoption of blockchain for financial services, and will align India with the world that is rapidly progressing towards adoption of digital currencies,” said Deepak Kothari, Co-founder and COO, ftcash. 

Also read: RBI Guv Shaktikanta Das lauds the launch of digital Rupee, calls it is ‘landmark’


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