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Tags Current Affairs

The Digital Rupee

Date: 03 February 2022 Tags: miscellaneous

Issue

The launch of a central bank digital currency (CBDC), known as Digital Rupee, has been announced by finance minister Nirmala Sitharaman.

 

Background

The government had previously shown its intention to launch a digital currency backed by the central bank.

 

Details

The CBDC will be launched by the Reserve Bank of India from the upcoming financial year. It will be backed by blockchain technology.

 

The CBDC

  • The Central Bank Digital Currency will be in form of legal tender that will be issued by RBI in digital form.

  • The digital currency will be similar to the fiat currency issued by the RBI in paper form. It will be interchangeable with any other currency.

  • The CBDC will be in electronic form and it would appear as liability (currency in circulation) on a central bank’s balance sheet. 

 

Need for CBDC

  • The aim of the move is to provide a legally backed digital asset that is secure as well as compliant with traditional banking system.

  • The government has issues with the existing digital currencies such as bitcoin, ether etc as they can be used for tax evasion, money laundering, terror financing etc.

  • The government’s announcement of its own digital currency will ensure that money flows through conventional path and can be easily monitored.

  • The move would give a big boost to digital economy and India would be the first major country to officially launch its currency in such a manner.

 

Implications on citizens

  • The Reserve Bank of India is yet to announce the details of how the Digital Rupee will be transacted by citizens.

  • The main difference will be that a Digital Rupee transaction will be instantaneous as compared to the current digital payment experience.

  • The currency can offer benefits in terms of liquidity, acceptance, scalability, ease of transactions with anonymity and faster settlement.

  • The cost involved in cross-border transaction could be cut significantly as there would not be inter-bank settlement. This will save remittance charges.

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