The Central Bank Digital Currency (CBDC) puts India, a nation undergoing a digital revolution, to the point where it has more than shown its preparedness to welcome the future of money. The country is in a great position to seize the significant advantages this ground-breaking invention has to provide. After all, India, from being an early adopter of digital payment systems, is now a shining example in the use of real-time payments.
Understanding CBDC
One must first fully grasp the concept of CBDC before appreciating its advantages. Unlike Bitcoin and other cryptocurrencies, CBDC is a digital form of fiat money produced and under control by the central bank of a country. Apart from having the same legal tender value as physical cash, the central bank bears direct accountability for the country’s CBDC as well.
In the case of India, this would be the e-Rupee or e₹. India’s CBDC was piloted in December 2022, in both the retail and wholesale segments. RBI’s goal of 1 million e₹ transactions a day was met around a year later. In this previous article, we have explained the concept of CBDC in detail. Now let’s dig further into the benefits of CBDC.
Potential benefits of CBDC for India
Equity in monetary concerns
By providing banking services to millions of people who either lack bank accounts or have insufficient ones, CBDC has the power to change financial inclusion in India. Those who live far-off can participate in the official economy by using such a digital wallet.
Generally speaking, digital transactions cost less than those based on cash. This helps to save costs. This also means that people and companies, especially those situated in rural areas, could be brought into the digital economy at notably lesser costs.
Public openness and efficiency
Unlike conventional payment methods, which usually include middlemen and clearance processes, CBDC transactions can be handled practically much faster. Furthermore, being a digital currency, CBDC lowers the possibility of fake notes, so guaranteeing confidence and security in the payment system.
One of the ways that more openness can help in the battle against tax evasion, money laundering, and other forms of financial crimes is by means of traceability and audit of CBDC transactions.
Expansion of digital economy
By accelerating the acceptance of digital payment systems, CBDC could help to create a cashless economy and assist economic growth by means of this process. It gives the central bank a direct avenue to provide monetary stimulus to the economy.
A payment system like CBDC can further help to streamline international trade and remittances, therefore reducing costs and improving efficiency.
Robust financial situation
By means of an alternative payment method, CBDC can help reduce the systematic hazards related to the existence of the banking system.
A strong CBDC infrastructure has the capacity to raise the resilience of the payment system, thereby ensuring that financial services will keep running nonstop.
For the shared good
Within the framework of disaster relief, CBDC could be a very useful tool since it allows the quick and efficient distribution of support to affected areas.
By allowing direct government benefit delivery to beneficiaries, CBDC helps lower leakages and improve targeting. This can have a huge bearing on social welfare initiatives.
Considerations and challenges
Although CBDC has great potential, it is important to address the possible issues and worries that might develop notwithstanding its great advantages. Among them are:
- In terms of cybersecurity, protecting the CBDC system against cyberattacks is absolutely vital. Protecting user information and preventing financial losses calls for strict security policies
- The use of CBDC could affect the banking system and the transmission of monetary policy, therefore influencing financial stability. Tight planning and control are necessary to lower the possibility of negative consequences
- Ensuring that everyone has equitable access to CBDC will help avoid the digital gap from becoming even more evident. The government must provide digital literacy and infrastructure in underdeveloped areas
Last thoughts
All said and done, the e-Rupee has the potential to improve the quality of life o millions of Indians and drive economic growth. If India takes the time to carefully address the issues and strategically capitalize on the possibilities, it might lead internationally in the acceptance and implementation of CBDC as well.
Cooperation among the government, central bank, financial institutions, and technology providers is of great relevance since the country is about to start this exciting journey, all of which guarantees a CBDC ecosystem that is successful and friendly to all.
