Digital Rupee or CBDC is digital currency issued by Reserve Bank of India (RBI). CBDC stands for Central Bank Digital Currency . As per press release on Oct 7th , 2022, RBI had announced that they will start a pilot project for Digital Rupee for specific use cases. Initially it will be tested for the Wholesale segment from 1st Nov, 2022 and within a month for Retail segment .
During or before Corona , people have invested in crypto and other digital currency . Now this is our own digital currency . For simple understanding, you have paper currency which you are withdrawing from ATMs or banks and using as money to buy products and services . After demonetisation in 2016 , introduction of GST in 2017 and Corona in 2020 , use of UPI , wallets like Paytm, GPay and Phone Pe gained lots of popularity in India . All these payment modes are very reliable . RBI has now added one more payment mode as Digital Rupee / CBDC .
What is need for Digital Rupee or CBDC ?
RBI has got power for management of currency as per Section 22 of the RBI Act, 1934 . When you are using paper rupee for money transactions, you are have trust in the Government and RBI that the central bank is liable to pay you back . It is a debt instrument for RBI and asset for holders of Paper Rupee. India as a country evolved from cheque to RTGS (Real Time Gross Settlement ) to NEFT (National Electronic Fund Transfer) to IMPS (Immediate Payment Service) to UPI (Unified Payment Interface) . RBI has played a vital role in rolling out all new payment modes. Digital Rupee is one more payment method to serve as legal tender . People will have more trust in RBI.
Digital Rupee will help to reduce operational costs and help to build an efficient settlement system including cross-border payments. In case electrical power or mobile network is not available , offline features in CBDC will be helpful in remote locations. This will offer availability and resilience benefits for Indians. Digital currency can provide seamless settlement for cross boarder payment.
Use of Cryptocurrencies :
Problem with cryptocurrencies are that there is no underlying. If it is investment, what is the benchmark ? Where is regulation ? If it is currency, is it regulated by the RBI ? Answer is No.
Government has declared 30% Income tax on Crypto .With the introduction of Digital Rupee, we have our own digital currency which is managed by the RBI.
As per RBI Press release, “The use case for this pilot is settlement of secondary market transactions in government securities. Use of e Rs.-W is expected to make the inter-bank market more efficient. Settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk. Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot.“
Currently Nine banks are selected for pilot viz., 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 .
What is the impact of Digital Rupee in our life ?
Are you a student, businessman ,banker, finance professional like CA, CS or Cost Accountant or IT professional or any other professional? We will all witness a new way of working.
Once the pilot for the wholesale Segment in settlement of Government securities are completed , it will be further tested for the retail segment . There will be need for IT systems to manage these transactions. Businesses may need to change that ERP system to accept such payment. Banks also need to educate client and provide service in these areas . We need Accounting standards, Income Tax and GST compliance in these regards.
The infrastructure of CBDCs can be on a conventional centrally controlled database or on Distributed Ledger Technology. Now with the revolution of cloud and block chain technology , CBDC will help to add value to these eco systems. There will be requirements for cyber security . We will need servers, computers, laptops, data and mobiles to handle new mode of payment.
Earlier cheque used to be a favourite payment mode as one will get some more credit days but now our businesses are transformed digitally. Take Example of SAP Automate payment process, with click of button business can process payment to vendor with payment advice in their email along with automated bank reconciliation with proper audit trail. I am sure that same revolution will work for Digital Rupee.
Hope you like this post. Money Management is the first step in financial planning. Do read our post How to do Money Management?
Author
-
by
-
