RBI announced that it would introduce a digital currency in India. Read on to know more about this digital development in India.
India Central Bank has given a proposal to release a digital currency in the nation which will be used for Digital transactions in the country as well as overseas. This currency will have the same value as the bank notes and will be used by all the citizens of India.
The RBI clearly mentioned that this digital currency will be different from cryptocurrencies. Cryptocurrencies are decentralised, which means that no government authorities have a hold on them whereas when we talk about the digital rupee issued by the RBI it will be under government authorities and will be managed by them. The digital currency issued by RBI will also help work against the threat posed by cryptocurrencies. In the article, we will talk about the digital currency being issued in India and how it differs from cryptocurrencies.
Digital Currency in India
The Reserve Bank of India is planning to launch a CBDC. CBDC is a central digital currency, commonly known as a digital rupee that will be exchangeable with the current currencies. It will be accepted for payments and have a store value. The main purpose of creating these digital currencies is to provide an option that can be used and is not very different from the current banknotes. The only difference between the Bank notes and the newly released digital currency would be that digital currency is only used digitally and is not present in physical form.
The digital rupee issued by the Reserve Bank of India is similar to cryptocurrency which will be acceptable in India. The 9 Central banks included in the release of digital currency are the State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC first bank, and HSBC.
Along with India, Russia and China are also considering the release of digital currency in the nation. This is mainly due to the increase in the popularity of cryptocurrencies. However, the decentralized nature of cryptocurrencies can be a threat to the financial stability of Nations and in such cases, digital currency released by government authorities can be helpful.
Difference between Digital Rupee and Cryptocurrency
Cryptocurrency is the digital form of money. The first cryptocurrency was Bitcoin, which was created in 2009 by an unknown person using the alias “Satoshi Nakamoto”. Cryptocurrencies are decentralized, peer-to-peer electronic currencies that are not managed or issued by any central authority. They are formed through a process called mining, which entails solving complex mathematical problems submitted to nodes on the blockchain. Once a node solves this problem, it broadcasts the information to all other nodes for verification and inclusion into the blockchain. This is how transactions are made and records are created on a crypto coin.
The one and the only threat to cryptocurrency and blockchain is that hackers can intrude and create an infinite number of crypto coins which can dissolve the entire blockchain system and the transactions of cryptocurrency would be considered invalid in such cases. This has happened before and it is an issue of major concern.
While the CBDC issued by the RBI might seem to be very similar to the cryptocurrencies it is something unique and different. It is a digital form of paper currency that is legally issued by central banks and it has the same value as Bank notes and is exchangeable with them. Digital rupees issued by the RBI are not digital assets, it is a digital avatars of the currency used in India.
Cryptocurrencies are decentralized. This means that government bodies have no authority over them, whereas the digital rupee issued by the RBI is completely legal and issued by central banks.
Advantages Of Digital Rupee
To promote the digital use of currency and online transactions, RBI is planning to launch a digital rupee. It can be used by all the citizens of India and is digitally transferable. It can be used to buy anything and has a safe value issued by the central banks.
Some advantages of issuing digital rupee will be:
- The use of blockchain in the digital rupee will make it transparent and increase efficiency. It will also help in tracking the transactions of digital currencies easily.
- This system of payment and exchange of money will be available 24/7.
- It will be possible for Indian buyers to pay without a middleman.
- The transaction cost of digital currency would be lower.
- The transaction of the digital rupees issued by the RBI can be done without having a bank account.
- Cross-border transactions of money would be made easier because of digital currencies.
- The digital rupees issued in India would be backed by RBI and therefore there is no risk of volatility.
- If we compare digital currency with the bank note issued, the digital rupee will be mobile forever.
- 30% tax will be charged on all cryptocurrencies such as Bitcoin and litecoin, but the digital rupee issued by the RBI will be exempted from such tax regulations.
Conclusion
The introduction of the digital rupee in India will solve multiple problems such as overseas transactions and problems related to physical currencies already issued. When transferring money overseas, it is a tedious task to convert the currency but with the release of the digital rupee this task will be made easier and there will be no transaction fees on the cross border transactions.
The blockchain facility used in the digital currency will also help in the tracking of the money. The government authorities will know when the transactions are taking place and who is involved in those transactions. The release of the digital rupee will also reduce the requirement and the printing of Bank notes. This will prove to save a lot of costs included in printing and distributing the money. This is a major step taken by the authorities to move the country forward toward a cashless economy.
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