RBI to start a pilot for Digital Rupee: How it is different from cryptocurrency and other details

The Reserve Bank of India (RBI) has issued a concept note on Central Bank Digital Currency (CBDC) to raise awareness about it and explain the objectives, benefits, technology, and as well as risks involved. The country’s apex bank also indicated that it will soon start a pilot programme for specific use cases and gives an idea of what one can expect from the Digital Rupee. The Digital Rupee will, to an extent, mimic the characteristics of hard money (notes and coins). In this article, we list down all that’s important to know about the CBDC.
What is CBDC or Digital Rupee?
CBDC or Digital Rupee is pretty much similar to the current fiat currency (paper notes and coins) and can be used for transactions legally. However, unlike the paper currency, the Digital Rupee cannot be touched. Additionally, you don’t need a bank account and Digital Rupee can be stored in a digital wallet.
Difference between CBDC and digital payments?
Since demonetisation in 2016, the scope of digital payments has been on a rise. Currently, the payments can be made through UPI, NEFT and RTGS. However, in these modes of payments, there is an intermediary bank through which the payments are verified and facilitated.
The RBI concept note says that the primary difference between CBDC and money in digital form/digital payments is liability. A CBDC will be a liability of the Reserve Bank, and not of a commercial bank. This means that all the transactions will be made through the central bank.
How is CBDC different from cryptocurrency?
There are various differences between CBDC and cryptocurrency. Cryptocurrency is ‘private’ in nature and it is not regulated by any country, any bank or the developers. On the other hand, CBDC can be regulated and controlled by the central bank.
Unlike CBDC, cryptocurrency is also volatile, which means its value can change quickly on the basis of demand (interest in the market in buying them) and supply (how much is available to buy). Thirdly, there is no need to mine it, hence, there are no environment-related concerns associated with Digital Rupee.
However, it is to be noted that both CBDC and cryptocurrency are dependent on some form of technology.
Benefits of CBDC or Digital Rupee?
As per RBI, CBDC will complement and not replace the current forms of money as well as existing payment systems. It says that Digital Rupee will “bolster India’s digital economy, enhance financial inclusion, and make the monetary and payment systems more efficient.”
Other benefits of the CBDC include reduction in cost associated with printing and management of physical cash, expedite cashless economy, and support innovation in payments. There will be real-time transactions without the need of any intermediary bank and payments can easily be made in other countries as well.
Risks involved in CBDC
Since CBDC and transactions will involve some kind of digital technology, there is a risk of hacking. It will be RBI’s responsibility to ensure the safety and security of the system. Additionally, there will be risk on CBDC users’ privacy. It will take quite some time and effort to commence as well as maintain the whole system of payments.

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