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Tag: digital rupee

  • With anonymity in doubt, few takers for the e-Rupee

    With anonymity in doubt, few takers for the e-Rupee

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    Usage of central bank digital currency or CBDC, popularly referred to as e-Rupee (e-Re), in the first two weeks since the rollout has been less than expected because there are still doubts on whether the transaction using digital currency is anonymous.

    While the Reserve Bank of India (RBI) has said the e-Rupee transactions are anonymous, on-ground implementation is not clear on this front.

    For example, the person making the payment and the one receiving it will get an SMS from the respective banks whose e-Re apps are used for the transaction. Issuing such messages is presently mandatory under the law for any digital transaction and e-Re is no exception. “If SMS should be sent, then the bank which is issuing the message has the transaction trail. This makes e-Re pseudo-anonymous, not fully anonymous,” said a highly placed source.

    Addressing concerns

    The RBI is working on addressing some of the concerns. A person aware of the matter said some communication from the RBI on this matter is expected soon because anonymity is one of the salient features of the recently piloted retail CBDC. Transactions into and out of the wallet are said to leave no digital trail. However, 11 days after its implementation questions are being raised on whether the digital currency is anonymous.

    “RBI could be issuing a circular and/or a discussion paper to address the issue,” the source said. The regulator is keen to iron out concerns with respect to anonymity before more banks and States can be added for the pilot testing of e-Re.

    Also, without this aspect effectively taken care of, industry participants feel that e-Re may not find use in high value transactions.

    Pseudo-anonymity

    Another person pointed out that one of the reasons why users are apprehensive to try out the e-Re app for high-value transactions is the fear of being tracked. “Cash withdrawals over ₹50,000 require the accountholder to mention Aadhar number. Some customers are wary that even with e-Re if these rules are applicable, they could come under scrutiny and it defies the purpose of anonymity,” he said. To put things in perspective, while the wallet-to-wallet transactions are said to be anonymous, when a user transfer money into the wallet or removes money from the wallet to his/her bank account, these transactions reflect on the bank statement of the user.

    “Tax authorities will have data on the amounts transferred into the wallet and we need clarity on whether such transactions will be monitored and questioned at a later date,” said a person quoted above. He added that unless these is comfort from the authorities that users will not be tracked and questioned for the amounts transferred into the wallet, high-value transactions or those above ₹50,000 may never be done through e-Re.

    On December 7, RBI Deputy Governor T Rabi Sankar said the RBI is exploring technological and legal solutions to keep e-Re transactions anonymous.

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    Hamsini Karthik

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  • How is RBI’s digital rupee different from cryptocurrency?

    How is RBI’s digital rupee different from cryptocurrency?

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    The Reserve Bank of India (RBI) made the announcement to launch the first pilot for the digital rupee today on December 1. With the launch, India has joined a handful of nations to launch its own blockchain currency that can underscore India’s pre-eminence in digitalised finance. To give some perspective, not even the United States has launched their Central Bank Digital Currency (CBDC) yet. 

    One of the most common questions asked is how digital rupee going to be similar to cryptocurrency. Well, the similarity between CBDC and cryptocurrency ends at the fact that they both have blockchain as the underlying technology. Therefore, with blockchain as a base, all transactions can be tracked on the ledger with no ability to modify the past – leading to transparency and easy bookkeeping. Hence, CBDC will be a technology-led currency of the RBI with control on the supply as well as usage side. It won’t be decentralized the way cryptocurrencies are. 

    The one stark difference between the two is while there is no regulator for cryptocurrency, digital rupee is a legal tender with RBI as the regulator. Here transactions may be a little more anonymous than other digital transactions, as money moves from wallet to wallet after a one-time deduction from the bank account, but still they can be tracked with RBI as the regulator. 

    “Since CBDC will be issued by the Central Bank like a digital form of currency notes and distributed by banks( distribution nodes) underline technology ( blockchain like tech stack) will record and maintain a transaction trail like the way it is done in banks core system. In case of CBDC transaction trail right from the issuance will be available within CBDC nodes, since the distribution of the CBDC will be by REs only, it would be offered to Kyced users in some cases may be non-Kyced users,” says Vishwas Patel, Director, Infibeam Avenues Ltd and Chairman, Payments Council Of India.

    Patel adds, “It’s currency in digital token form on a blockchain. With a retail CBDC, you should be able to transact without any bank involved (like physical cash). It will have the same denominations like physical cash. It’s quite different from UPI which is an actual debit from your bank account. CBDC is a currency, a legal tender guaranteed by RBI.”

    Moreover, unlike cryptocurrency, you will be able to make payments and transact with digital rupee through a digital wallet offered by the participating banks and stored on mobile phones. “A successful pilot and by extension, a full rollout of the digital rupee is expected to boost the reach of payment and financial needs of a wider category of users while ensuring transparency and low operational cost, and in this regard, it is encouraging to witness RBI’s support for innovation in creating a world-class, future-ready digital ecosystem,” says  Jaya Vaidhyanathan, CEO, BCT Digital.

    Finally, digital rupee is the electronic form of cash, which will be used for buying and selling goods and services. Unlike cryptos you cannot treat it as an asset class and invest in it. 

    Also Read: Digital Rupee pilot today: Features, where and how it will be rolled out; all you need to know

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  • Digital Rupee coming on Dec 1: How will it work and what does it mean for you?

    Digital Rupee coming on Dec 1: How will it work and what does it mean for you?

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    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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