On November 01, 2022, the Reserve Bank of India started the trials of its own digital currency “Digital Rupee“. As of now, Tt is started only for the wholesale segment in India. If all the things operate according to the plan of RBI then soon it will be available for all citizens of India. As per RBI plans the first pilot in Digital Rupee- Retail Segment is all set to launch at some locations.
In total 9 Banks in India have been identified for participation in digital currency’s first wholesale pilot. Many people may confuse this with other traditional digital currencies also referred to as “Cryptocurrencies“. But it is way apart from them which we discuss further in this article. Also, we understand the advantages and disadvantages of the digital rupee. And find out if Is India ready for the digital rupee.
Meaning of the Digital Rupee?
Digital Rupee also known as “Central Bank Digital Currency (CBDC)” is a digital form of currency/money issued and administered by the Reserve Bank of India. In other words, the digital rupee is the name of the Indian government’s digital currency. As similar to other digital forms of currency the digital rupee is electronic money used for contactless or paperless transactions. During the announcement of the Union Budget of 2022 the Indian finance minister, Mrs. Nirmala Sitaraman stated that India will have its own digital currency soon and now it is in operation.
Type of CBDC
- Wholesale (CBDC-W) – It comes with restricted access to some selected businesses and financial institutions of India.
- Retail (CBDC-R) – like any other currency this type of CBDC will be available for all to use.
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Benefits of Digital Rupee
Centralized
All the cryptocurrencies available in the market right now are decentralized in nature. It means no one has control over these currencies. On the other side, the digital currency of India will be centralized and administrated by the Reserve Bank of India. It will give the users a sense of trust that RBI is answerable to them. Unlike other cryptocurrencies where no one know-how and who manages them. Here RBI brings transparency to the operations of money.
Globally Usable
According to the reports RBI, the digital rupee will eliminate the geographical obligation related to financial transactions. It can be posses by a person who is not an Indian resident. It also enables the seamless cross-border financial transaction.
Function Without the need for a Bank Account
UPI dominating the Indian financial transaction market for the last 3 years. It is fast secure reliable and smooth but it has one limitation. For using UPI one needs to have a bank account and in many cases, people do not have an account. In this form of digital currency, a user does not require to have an account for doing financial transactions.
Traceable Transactions
Many Financial Experts stated the adoption of the digital rupee will help the Indian government in the monitoring of the funds. It will add a dimension to digital governance. At any point in time, they can trace the transaction if they are using for any unethical work.
Eliminate the Printing and Other Cost Related to Hard Money
At starting level it is hard to predict how much the digital rupee impacts the cost related to the operation of hard money. As per financial experts, the smooth operation of digital currencies will reduce people’s dependency on cash. The reason is they do not need to carry hard cash the money is always there in the mobile.
Remove the fake currency scenario
One of the major challenges the government faces while operating the hard cash is using of fake money. According to a report of business standards in 2022, the use of fake 2000 rupee notes increased by 55%. Many innocent people fall into the trap of fake money and lost their money. Digital currency can’t be replicated by anyone. RBI issued and administrated the digital rupee directly to the account holder and then users can send or receive this money by using their mobile only.
Fast, Reliable, and Done in Real Time
Similar to other modes of online financial transactions digital rupee has all the benefits such as speedy transactions, security, financial privacy, and real-time insights.
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Negative Aspect of this new form of Currency
Lack of Technology Awareness in India
Although because of the cheaper internet rates in India a large number of the population use smartphones but most of them are not educated. They use mobile as a mode of communication or medium of entertainment. Probably they do not use online financial services. Also here in India, people do have a negative pov towards online things.
Increase in Online Fraud and Scams
In FY 2022 India, almost 130 crores rupees are looted by scammers in various online frauds. As mentioned earlier point the people of India are not technically educated and scammers target them. Since we are talking about the adaptation of the digital rupee the scammers will target the people. It going to be hard for the government to implement the digital rupee properly without tackling these scammers.
Hackable
As we all know all the things on the internet are hackable. In the last 2 years, India has seen a 23% increase in cyber attacks. Now India started its digital rupee now hackers surely target Indian government servers to gain access. It can be used to fund illegal activities such as terrorism, drugs, and more. Also for using the digital rupee one has to create an account with the portal which will have some sensitive information about the users. If the server got hacked it will become a threat to the digital privacy of users in India.
Is India Ready For Digital Currency?
In the last few years, Indian citizens shows a positive response toward digital currencies. Bitcoin, Shiba Inu, and Dogecoin are the most popular crypto in India. But the problem with cryptos is no one knows how they operated. It raises plenty of questions such as if all the countries banned crypto in their country then. RBI’s “Digital Rupee” eliminate most of the major concern related to digital currency. Since it is regulated by RBI then all the countries have to accept it and it brings transparency for the user. It will surely impact the Indian market and attract the youth.
Although there are lots of problems related to the execution of digital money. The Reserve Bank of India and the Indian government have to find a way to tackle these problems. If all went as per plan then the digital rupee can make the Indian financial market more reliable.