The Reserve Bank of India has launched a pilot program for its central bank digital currency (CBDC) by introducing digital rupee, which it defines as digital legal tender. The digital rupee, as it will be known, will be exchangeable at par with existing currencies and will be accepted for payments as well as a safe store of value.
CBDC, also known as the e₹ or the digital rupee, is a new currency issued by the Reserve Bank of India that is similar to existing banknotes except that it is expected to be transacted digitally and facilitate ease of use.
The RBI’s primary motivation for launching a digital rupee is to propel India forward in the virtual currency race.
Benefits of the digital rupee
- The new currency will become more efficient and transparent as a result of blockchain technology. Blockchain technology will help with real-time tracking and ledger maintenance of the transactions. The payment system will be available to wholesale and retail customers 24 hours a day, seven days a week.
- Thus Indian buyers can pay without the use of a middleman because to use a digital rupee, you do not need to open a bank account. This in turn will reduce transaction costs and account settlements in real-time.
- Cross-border transactions can also be completed quickly where there is no risk of volatility because the RBI will back it.
- In comparison to currency notes, the new currency will be mobile indefinitely.
The RBI expects that by introducing the digital rupee, it will be able to address issues with existing physical currencies and cross-border transactions.
Cross-border money transfer and conversion into foreign currency is time-consuming and costly. With the introduction of the new digital currency, instant cross-border money transfers are expected to improve bank cash management and operations.
Cash placement and tracking are difficult in India. CBDC can address anonymity and resolve it in a non-threatening manner, thereby reducing the demand for cash. The government will save money on operations, printing, distribution, and storage, advancing the government’s vision of a cashless economy.