• UGI USER
  • Aug 05, 2024
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DIGITAL RUPEE: BENEFITS, CHALLENGES, AND GLOBAL COMPARISONS

Why in the news?

India’s digital rupee pilot explores CBDCs’ potential to enhance financial inclusion, digital payments, and cross-border transactions amid adoption challenges.

source:scribd

Digital Rupee Overview:

  • India, led by the Reserve Bank of India (RBI), launched a Central Bank Digital Currency (CBDC) pilot for a digital rupee in late 2022.
  • Two types of CBDC were introduced: wholesale (CBDC-W) for market transactions and retail (CBDC-R) for general use as digital fiat money.
  • CBDCs are sovereign currencies, unlike private digital payments like UPI.

Benefits and Potential:

  • Aimed at boosting financial inclusion and digital payment efficiency.
  • Helps unbanked populations with a safe, easy digital payment solution.
  • Can enhance cross-border payment systems, beneficial for India as the largest remittance recipient.
  • 15 global projects are exploring CBDC interoperability.
About Central Bank Digital Currency(CBDC):

  • Legal tender issued by a central bank in digital form.
  • Backed by the central bank, ensuring stability and trust.
  • Exchangeable one-to-one with fiat currency.
  • Transacted using wallets backed by blockchain.
  • Inspired by Bitcoin but different from decentralised virtual currencies and crypto assets.

Objectives:

  • Mitigate risks and costs of handling physical currency.
  • Reduce reliance on cryptocurrencies for money transfer.

Global Trends:

  • Bahamas launched Sand Dollar in 2020.
  • Nigeria introduced eNaira in 2020.
  • China piloted e-CNY in April 2020.

What is e-Rupee?

  • Definition: Digital form of currency notes issued by RBI, a sovereign currency per the country’s monetary policy.
  • Legal Tender: Officially recognized for payments by citizens, government bodies, and enterprises, convertible to commercial bank money.
  • Interest: RBI opposes interest-bearing e-rupee to prevent bank failures from mass withdrawals.
  • Difference with Cryptocurrencies: Issued and controlled by RBI, unlike private cryptocurrencies like Bitcoin or Ethereum.
  • Global Scenario: By July 2022, 105 countries explored CBDCs; 10 launched them, starting with the Bahamian Sand Dollar in 2020.

Associated Article:

https://universalinstitutions.com/cbdc-future-upi-payment-revolution/