On November 1, the Reserve Bank of India (RBI) launched the initial trial of the Digital Rupee, or e-rupee, in the wholesale market for government securities. Later, the RBI said that it will conduct a comparable retail experiment to the wholesale e-rupee pilot this month.
The central bank digital currency (CBDC) debut has been hailed by the RBI as a watershed event in the history of the nation’s currencies and as something that would fundamentally alter how people do business. Now, if you’re curious about what the e-Rupee is and why it was introduced, keep reading to discover.
Describe Digital Rupee
A type of digital money that may be used in contactless transactions is the e-Rupee, a digital representation of currency notes produced by central banks. “The central bank digital currency (CBDC), often known as the digital rupee, is recognized as money and is considered legal tender.
It will be accepted as payment, exchangeable at par with fiat money, and recognized as a safe place to save money. A central bank’s currency notes have a digital equivalent known as the “Digital Rupee.” It is a form of currency that supports contactless exchanges, “explained Mahesh Shukla, PayMe’s CEO, and founder.
Advantages of the digital rupee
A digitized currency would not only lower transaction costs but also make it simpler for governments to access all transactions taking place inside approved networks. “It will be hard to escape the government’s scrutiny, making every transaction subject to the applicable domestic laws.
As a result, the government will have more control over how money departs and enters the nation, enabling them to make room for improved budgeting, future economic plans, and an all-around safer environment, according to Archit Gupta.
“The launch of CBDC has been seen as a praiseworthy effort by the Reserve Bank of India to revolutionize the very nature of money and its operations,” stated Mr. Debraj Dutta, Senior Business Development Manager, Montran India.
Financial inclusion will be fueled by digital money, which will also improve the payments industry’s resilience and efficiency. To improve the Delivery-Versus-Payment method for secured and guaranteed payment and settlement of money, the CBDC and the central bank’s RTGS will work together.
The Central Bank’s aim of interoperability, openness, accessibility and financial inclusion will be complemented by CDBC’s interface with RTGS.
It was reported earlier this month that the RBI has been considering the advantages and disadvantages of a central bank digital currency and is planning to gradually introduce it.
Why did the RBI release the Digital Rupee?
The RBI’s experiment to introduce the e-rupee in a controlled setting, according to Shravan Shetty, Managing Director of Primus Partners, is a smart decision since it will help to resolve the operational issues in a closed ecosystem.
Prior to scaling it up for the retail sector, he said that the action will help in assessing the impact of the digital currency with a few established firms in the field.
The introduction aims to improve the interbank market’s efficiency while boosting the digital economy. It will also aid in defining the governance structure that might be necessary for its larger-scale introduction.
The constant rise in digital payment volume throughout the epidemic has been a glaring sign of the rising need for acceptable digital substitutes for Indian money. The launch of the e-rupee will assist RBI in reducing costs connected with paper money, including delaying the loss of damaged notes, which is an essential point to notice.
Additionally, the G20 has prioritized improving cross-border payments; as a result, faster, less expensive, more transparent, and inclusive cross-border payment services would benefit economies and citizens globally, promoting economic growth, international trade, development, and financial inclusion, according to Shetty.
According to experts, the RBI really introduced the digital rupee in order to advance India in the competition for online currencies. Coins are becoming more popular, which further justifies this launch. The game will undoubtedly alter since the digital rupee will boost efficiency and transparency owing to blockchain technology.
Customers will always have access to the payment system thanks to this. Additionally, this will facilitate direct payments from Indian consumers, lowering transaction costs and enabling real-time account settlements, “Shukla stated.
The Digital Rupee’s Effect on Business
Gaurav Bhagat, a business coach and founder of the Gaurav Bhagat Academy (GBA), said the wholesale CBDC could make transactions more accessible and change transaction settlement procedures.
In addition to strengthening the nation’s digital economy, this will increase financial inclusion. The reserve bank will soon make the CBDC available to the retail sector as well. Furthermore, even for customers connected to a specific bank account, the adoption of the digital rupee would speed up cross-border transactions.”
It is anticipated that the pilot program for Central Bank Digital Currency (CBDC) being launched by the Reserve Bank of India (RBI) on November 1, 2022, will increase the interbank market’s efficiency and security.
According to the apex bank, the step will lower transaction costs by avoiding the requirement for infrastructure for settlement guarantee systems or for collateral to decrease settlement risk.
There are two major categories of CBDC: retail CBDC and wholesale CBDC. The wholesale sector was the first to get digital currency from the RBI. For the settlement of interbank transfers and associated transactions, the central bank developed a wholesale CBDC.
What distinguishes the digital rupee from cryptocurrency?
“It is impossible to compare the CBDC directly with cryptocurrencies because the digital rupee is neither a physical good nor a virtual asset, unlike cryptocurrencies,” said Mahesh Shukla, PayMe’s CEO, and founder. In addition, cryptocurrency isn’t money..”
Similar to the paper banknotes that central banks like the RBI produce, this digital rupee may be converted into cash. The CBDC, which will perform the same function as banknotes but is not a decentralized asset like cryptocurrencies, will continue to be issued by the RBI.