DIGITAL RUPEE
All about the Digital Rupee you want to know
What is Digital Rupee ? How it works
Central Bank Digital Currency-Retail (e₹-R) Pilot Project will begin tomorrow :
Dated 30.11.2022 : As announced earlier ,Reserve Bank of India ( RBI ) will begin the pilot project of the retail segment of CBDC tomorrow.
2. The pilot would cover select locations in closed user group (CUG) comprising participating customers and merchants. The e₹-R would be in the form of a digital token that represents legal tender. It would be issued in the same denominations that paper currency and coins are currently issued. It would be distributed through banks. Users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones / devices. Transactions can be both Person to Person (P2P) and Person to Merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations. The e₹-R would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks.
3. The pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. Different features and applications of the e₹-R token and architecture will be tested in future pilots, based on the learnings from this pilot.
4. Eight banks have been identified for phase-wise participation in this pilot. The first phase will begin with four banks, viz., State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank in four cities across the country. Four more banks, viz., Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank will join this pilot subsequently. The pilot would initially cover four cities, viz., Mumbai, New Delhi, Bengaluru and Bhubaneswar and later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. The scope of pilot may be expanded gradually to include more banks, users and locations as needed.
To read press release of RBI in this regard , CLICK HERE
Central Bank Digital Currency-Wholesale (e₹-W) Pilot Project commences :
Dated 01.11.2022 : As announced earlier ,Reserve Bank of India ( RBI ) commenced the pilot project of the wholesale segment of CBDC today .
The use case for this pilot project is settlement of secondary market transactions in government securities. Use of e₹-W is expected to make the inter-bank market more efficient. It's expected that the 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. As per RBI announcement , other wholesale transactions, and cross-border payments will be taken up in the future pilots projects .
Nine banks, 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 have been identified for participation in the present pilot project .
The first pilot in Digital Rupee - Retail segment (e₹-R) will be for a launch within a month in select locations in closed user groups comprising customers and merchants.
To read press release of RBI in this regard , CLICK HERE
LATEST ON DIGITAL RUPEE : RBI SOON TO COMMENCE PILOT LAUNCHES OF DIGITAL RUPEE ( e₹ )
BANKS TO DISTRIBUTE TOKENIZED DIGITAL RUPEE
Dated 08.10.2022 : Reserve Bank of India ( RBI ) has announced its intention of launching its Digital currency e₹ for specific uses . It has also released a concept Note " Concept Note on Central Bank Digital Currency (CBDC) for India. "
According to the concept note " CBDC is the legal tender issued by a central bank in a digital form. It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and shall be accepted as a medium of payment, legal tender and a safe store of value. CBDCs would appear as liability on a central bank’s balance sheet. "
As per concept note , The key motivations to RBI for exploring the issuance of CBDC in India among others include reduction in operational costs involved in physical cash management,fostering financial inclusion, bringing resilience, efficiency, and innovation in payments system, adding efficiency to the settlement system, boosting innovation in cross-border payments space and providing Concept Note on CBDC public with uses that any private virtual currencies can provide, without the associated risks. The use of offline feature in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not available .
It means Digital Rupee e₹ will be like a digital wallet money like Amazon money , ola money , PayTM etc and it will have sovereign backing which is not available to private wallets .
CBDC can be classified into two broad types viz. general purpose or retail (CBDC-R) and wholesale (CBDC-W). Retail CBDC would be potentially available for use by all viz. private sector, non-financial Concept Note on CBDC 8 consumers and businesses while wholesale CBDC is designed for restricted access to select financial institutions. While Wholesale CBDC is intended for the settlement of interbank transfers and related wholesale transactions, Retail CBDC is an electronic version of cash primarily meant for retail transactions.
RBI concept note proposes 2 pilot projects one each in the wholesale and retail segments to begin with. Retail CBDC (CBDC-R), a token-based is proposed wherein the Reserve Bank shall only issue and redeem e₹ while the distribution and payment services will be delegated to the banks.
To read the complete concept note , CLICK HERE
WHAT IS DIGITAL RUPEE ? and how does it work ?
Digital Rupee will be virtual currency or Digital currency issued by Reserve Bank of India ( RBI ) . Its value will be same as Indian currency . It will be a virtual currency backed by the central bank RBI in India and hence it will be as good as holding Indian Rupee notes in your physical wallets . It will be , for all practical purposes , cash held in your mobile phones / computers . RBI will use Blockchain Technology to establish the framework for the Digital Rupee .
It will be just a different form of the Rupee note . Digital rupee can be converted in to cash anytime without hassles . As Digital Rupee is another form of cash , it will not fetch any interest on its balances .
In technical terms , Digital Rupee will be a CBDC issued in India by her central bank RBI .
What is CBDC ? : A CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.
WHAT IS THE DIFFERENCE BETWEEN DIGITAL RUPEE AND CRYPTOCURRENCIES ?
It is reported that there are more than 7800 private cryptocurrencies available in the world . The major five cryptocurrencies are Bitcoins , Ethereum , Binance , Tether and Cardano . Most of them use Blockchain technology and RBI' s Digital Rupee will also use the same Blockchain Technology . All are digital currencies , run on computer platforms and have no physical presence , just like Digital rupee envisaged . But similarities stop here .
Major Difference between Digital Rupee and other private cryptocurrencies :
1. ISSUERS : There is no ISSUER for the private cryptocurrencies and are not convertible one-to-one into any sovereign currency . As there is no need to take any permission from anybody to establish a cryptocurrency framework , the systems are uncontrolled . We don't know the reliabilities of the promoters , systems used or the the details of frameworks used . Most of the cryptocurrencies use open source & cloud computing and the Digital Rupee will be issued and controlled by by Reserve Bank of India ( RBI ) . RBI takes charge of the Digital Rupee as central authority and they are responsible for the system.
2. TRADABILITY : The private cryptocurrencies have no intrinsic value , as they are not backed by any assets . They find their values in markets through being traded in ( Cryptocurrency ) Exchanges . Hence they have no fixed value and are subject to frequent fluctuation , valuation and speculation . Hence such cryptocurrencies are held for the purpose of investment expecting profit from the change in values . But Digital Rupee is controlled and backed by RBI which has fixed its value to equivalent to Indian Rupee notes / coins issued by them . As the value is fixed , it will be not be traded . It will be used as a payment instrument . However its value will fluctuate with other overseas currencies in tune with Indian Rupee quotes.
Hence private cryptocurrencies and Digital Rupee serve different purposes and have different uses and hence are not comparable in stricter terms.
WHAT IS THE DIFFERENCE BETWEEN DIGITAL RUPEE AND WALLET RUPEE ?
Digital wallets in Rupee terms or PPI ( Pre-paid Instruments ) are issued by many Banks and Non-banking services, like Amazon , PAYTM , Ola money etc under the approval of Reserve Bank of India ( RBI ) . There are two types of wallets issued KYC -compliant and KYC non-compliant . There are rules and regulations issued by RBI governing issue , operations and balances in such wallets for each type of wallet.
All wallet cash are issued in Indian Rupee and they are issued in Rupees only and hence values are fixed along with Indian Rupee . The wallet is not considered by DICGC cover as they are not treated as deposits with banks . These wallet rupees should not be confused with cryptocurrency wallets that stand differently .
While wallet cash in rupee are authorized by RBI , Digital Rupee will be issued by RBI with full sovereign backing . Hence they will be more safer than the wallet cash .
Ref RBI Publication dated 20.09.2021
Benefits of using Digital Rupee :
Advantages to RBI :
1. Presently RBI is spending around Rs 3 per piece of note it prints . Further it has to bear the cost of holding , distribution , exchange and reprinting after lapse of certain period . By issuing Digital Rupees , RBI will be saving all such costs .
2. Control of Entire stock of Digital Rupees will remain with RBI and hence RBI will save its efforts on accounting the stock ,maintenance of stock , distribution of tock .
3. RBI can track the cash holdings ( Digital rupee holdings ) for better monitoring of its movements .
Advantages to Public :
1. Public need not worry of holding different denominations of cash as they can make payment directly from their Digital rupee holding .
2. Dependency on physical cash along fear of holding fake currencies and fear of losing physical cash by theft , fire , flood etc will reduce .
Advantages to Banks :
1. Requirement of managing cash , running cash counters , deploying associate staff will come down .
2. Unproductive holding of large cash reserves will come down .
DISADVANTAGES : As RBI is yet to announce modus operandi of operations of Digital rupee , we can assess the problems associated in managing such digital currencies will come to open when it becomes operational .
RBI DG ON DIGITAL RUPEE / CBDC :
RBI IS MULLING OVER ITS OWN CRYPTOCURRENCY : DG
Dated 23.07.2021 : Shri T Rabi Sankar, Deputy Governor, Reserve Bank of India , has advised , in a webinar organized by Vidhi Centre for Legal Policy, New Delhi , that RBI is also exploring , like other central banks , the pros and cons of introduction of CBDCs ( “Central Bank Digital Currencies ) since quite some time. He also disclosed that the High Level Inter-Ministerial Committee (November 2017) constituted by Ministry of Finance, Government of India (GoI) to examine the policy and legal framework for regulation of virtual / crypto currencies had recommended the introduction of CBDCs as a digital form of fiat money in India.
In his speech , he touched some of the issues relating to digital currency as below "
What is CBDC ? : A CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.
Major Difference between CBDC and other private cryptocurrencies : There is no ISSUER for the private cryptocurrencies and are not convertible one-to-one into any sovereign currency , while CBDC is issued by respective central banks and has equal value to the regular sovereign currency issued by them .
Why Central Banks want to issue CBDC ?
1. Central banks, faced with dwindling usage of paper currency, seek to popularize a more acceptable electronic form of currency (like Sweden);
2 . Jurisdictions with significant physical cash usage seeking to make issuance more efficient (like Denmark, Germany, or Japan or even the US);
3. Central banks seek to meet the public’s need for digital currencies, manifested in the increasing use of private virtual currencies, and thereby avoid the more damaging consequences of such private currencies.
4. CBDCs have clear advantages over other digital payments systems – payments using CBDCs are final and thus reduce settlement risk in the financial system. The need for interbank settlement disappears
Why RBI and other Central Banks mulling over CBDC ?
The advent of private virtual currencies (VCs) may well be another reason why CBDCs might become necessary. It is not clear what specific need is met by these private VCs that official money cannot meet as efficiently, but that may in itself not come in the way of their adoption. If these VCs gain recognition, national currencies with limited convertibility are likely to come under threat. To be sure, freely convertible currencies like the US Dollar may not be affected as most of these VCs are denominated in US Dollar. In fact, these VCs might encourage the use of US Dollar, as has been argued by Randal Quarles3. Developing our own CBDC could provide the public with uses that any private VC can provide and to that extent might retain public preference for the Rupee. It could also protect the public from the abnormal level of volatility some of these VCs experience. Indeed, this could be the key factor nudging central banks from considering CBDCs as a secure and stable form of digital money. As Christine Lagarde, President of the ECB has mentioned in the BIS Annual Report “… central banks have a duty to safeguard people's trust in our money. Central banks must complement their domestic efforts with close cooperation to guide the exploration of central bank digital currencies to identify reliable principles and encourage innovation.”
The effect of CBDC on Banking System :
1. CBDCs, depending on the extent of its use, can cause a reduction in the transaction demand for bank deposits. Since transactions in CBDCs reduce settlement risk as well, they reduce the liquidity needs for settlement of transactions (such as intra-day liquidity). In addition, by providing a genuinely risk-free alternative to bank deposits, they could cause a shift away from bank deposits which in turn might reduce the need for government guarantees on deposits (Dyson and Hodgson, 2016).
2. At the same time reduced disintermediation of banks carries its own risks. If banks begin to lose deposits over time, their ability for credit creation gets constrained. Since central banks cannot provide credit to the private sector, the impact on the role of bank credit needs to be well understood. Plus, as banks lose significant volume of low-cost transaction deposits their interest margin might come under stress leading to an increase in cost of credit. .
3. There is another risk of CBDCs that could be material. Availability of CBDC makes it easy for depositors to withdraw balances if there is stress on any bank. Flight of deposits can be much faster compared to cash withdrawal. On the other hand, just the availability of CBDCs might reduce panic ‘runs’ since depositors have knowledge that they can withdraw quickly. One consequence could be that banks would be motivated to hold a larger level of liquidity which could result in lower returns for commercial banks.
4. In actual fact, notwithstanding the benefits of CBDCs vis-à-vis bank deposits, since CBDCs are currency and therefore do not pay interest, their impact on bank deposits may actually be rather limited. Depositors that require CBDCs for transactional purposes are likely to sweep day end balances to interest-earning deposit accounts.
To read complete speech of Mr T.Ravi Sankar dated 22.07.2021 , CLICK HERE
Which countries have issued CBDC ?
It is reported that Nigeria, Bahamas and 7 Caribbean countries have launched their CBDC fully . Two other countries namely Senegal & Ecuador have issued & cancelled their CBDC . Countries like China , France , Canada , Ghana , South Africa , U.A.E , Saudi Arabia , Uruguay and Singapore are running their Pilot project . Another 81 countries are having their research on introduction of their CBDC .