2023 was a significant year for India’s digital rupee called e-Rupee (e₹). Pilot tests of the e-Rupee began in December 2022, and by the end of March 2023, RBI records showed that ₹1616.39 crore worth of the digital rupee was already in use. RBI's first goal was for one million e-Rupee transactions to be processed every day by the end of 2023, a goal which was achieved as planned.
The pilot of India's CBDC was launched in December 2022 in both the retail and whole segments, with small groups of customers and merchants. The idea behind working with e₹ is to boost the development of the digital economy while also lowering the costs of handling cash. Creating a digital currency also helps make a payment system that works well and helps more people get access to money, eventually enhancing financial inclusion. But what does CBDC really mean? Let's find out.
What is CBDC
CBDC or Central Bank Digital Currency is the digital form of the national currency of a nation. The country's central bank issues and oversees CBDC in the same way it does with the country’s physical currency.
Digital currencies or CBDCs, such as e-Rupee, are more efficient and safer than traditional currencies, which people think of as stable and reliable. CBDCs combine the best of both worlds, which could completely change the way money works and allow for new ways to pay, make policies, and include every citizen from urban as well as rural areas into the financial system.
The origin of CBDC
While CBDC is a fairly new concept for most of us, Nobel Prize winner James Tobin was the first person to talk about it in 1987. He suggested to store digital currency as a way for people to pay for things that was both safe and easy to use.
The idea has been around for decades, but it wasn't until recently that central banks around the world began to take it seriously. This is because fewer and fewer people use cash. Furthermore, improvements in technology have made more research and studies into CBDC possible. At the moment, more than 100 CBDCs are in the research and development stage. Nigeria and The Bahamas were the first two nations to go fully live with their respective CBDCs.
The benefits of CBDC
One of the major reasons nations around the world are looking into CBDCs is to deal with the rise in popularity and use of private cryptocurrencies. These are decentralized digital currencies that are not controlled or backed by a central authority. They are not part of the regular banking system, so central banks can't regulate them. Cryptocurrencies cause many threats and dangers that CBDCs can help fight. Central banks may be able to take back control of a country's monetary policies with the help of CBDCs.
One more good thing about CBDCs is that they can be made in two different types: retail and wholesale. Wholesale CBDC can be used only by financial institutions and is mostly used for deals between banks and other wholesale transactions. Retail CBDC, on the other hand, is open to everyone and can be used for everyday payments where cash or digital payment methods are usually used.
Besides these benefits, CBDC could completely change the way money works by making deals faster and cheaper, allowing more people to use money, and making transactions transparent.
The challenges of CBDC
A well-thought-out plan, clear rules, and general support are all important for CBDC to work. To find out what CBDC can do, there needs to be a lot of study, pilot projects, and teamwork between central banks, governments, and technology companies.
Another big worry about CBDCs is their impact on privacy and safety. Also, it is very important to find a balance between protecting users' privacy and stopping illegal activities like money laundering and funding for terrorism. For CBDC
systems to work well and be effective, we also need to think about technical issues like scalability, interoperability, and resilience.
Our take on CBDC
In India, the e-Rupee will be a big part of making our digital economy flourish further. In the past few years, digital payments have grown by leaps and bounds, thanks in large part to UPI. Our CBDC will only help this progress go even further.
When it comes to retail CBDC, we think that India will use it extensively, just like they use digital payment methods now. As more people join the digital economy, a well-established CBDC can lower the costs of operations, make it easier for people to do small amounts of banking, and improve financial inclusion.
