With growing electronic transactions, it seemed to be a fair opportunity for the central bank to issue a digital currency backed by the government of India. There is increased participation in virtual private currencies. A vast section of people seemed to trade in cryptocurrencies, including Bitcoin, Ethereum, Cardano, Matic, and others. With an intent to have a digital currency that does not only have the foundations but is also backed by the central bank of the country. Therefore, the Government of India is working on developing and establishing a virtual currency called "Digital Rupee" under the guidance of the RBI and the Central Bank of India.
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What is Digital Rupee?
It is a digital currency issue within the monetary framework of the Reserve Bank of India. The government is working with the regulatory authorities to examine the usefulness and how it will operate. The concept of the Digital Rupee got the interest of many regulatory authorities, including the Securities and Exchange Board of India (SEBI), MeitY (Ministry of Electronics and Information Technology).
The discussion is led by the inter-ministerial panel constituted by the former Union Finance Minister Arun Jaitley, incorporated to study the issues regarding the same. The high-level panel is selected under the chairmanship of Subhash Chandra Garg, Secretary, Department of Economic Affairs, Ministry of Finance, and panel members including Ajay Prakash Sawhney, Secretary, MeitY, Ajay Tyagi, Chairman, SEBI and B.P. Kanungo, Deputy Governor, RBI.
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How Digital Rupee Will Come in Action Replacing Other Cryptocurrencies?
Digital Rupee will soon come into action. The Central Bank of India is ready to Launch Trails by December. Central Banks of the respective countries, including China, Europe, and the UK are planning to launch a virtual currency that is backed by the government.
The Central Bank Governor, Shaktikanta Das said, “We are being extremely careful about it because it’s completely a new product, not just for RBI, but globally.” Moreover, the RBI is studying various aspects of the digital currency, including, security, economic factors on different industries, and how it will affect the monetary policy, and the currency in circulation.
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Which Technology of Ledger RBI will Choose?
Depending on what is more beneficial to the public in India, RBI is still in though whether to choose a centralized ledger for the digital currency or the so-called distributed ledger technology (DLT).
The pane is working efficaciously toward providing astute recommendations for introducing digital rupee or CBDC by using Distributed Ledger Technology (DLT). It is a technology allowing the recording, sharing, and transfer of data or value without the need to keep the traditional ledger. Internationally DLT is widely used by the following:
- Trade finance
- Mortgage Loan Application
- Digital Identity Management
- KYC Requirements
- Cross-border fund transfers
- Clearing and settlement systems
Also, the RBI has formed a departmental group that will be focused on the study and guidance of CBDC's desirability and feasibility of introduction.
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What Challenges in the Issuance of CBDC Government is Facing?
The introduction of CBDC (Central Bank Digital Currency) is at the budding stage. There is a strong foundation required to incorporate various infrastructural changes before the launch. The country-wide operationality of the digital currency indeed depends on the efficacy of the present monetary and transactional platforms. Therefore, there is a need to bring change in the monetary, regulatory, and technological considerations. Per the study of the Bank for International Settlements (BIS), CBDCs might be useful as an option of payment. Still, it needs to work more for assessing the full potential. Moreover, the creation of CBDC is not to alter the mechanics of monetary policy implementations, but its transmission may get affected.
“Cyber-security is currently one of the most important operational challenges for central bank systems and the financial industry more generally. Cyber-threats, such as malware, and fraud are risks for nearly every payment, clearing and settlement system. They pose, however, a particular challenge for a general-purpose CBDC, which is open to many participants and points of attack. Moreover, the potential effect of fraud could be more significant because of the ease with which large amounts could be transferred electronically. Robust mitigation methods of cyber-risk would, therefore, be a prerequisite for CBDC issuance,” noted BIS.
“Technologically, scalability and transaction speed as also interoperability and integration into existing financial systems remains a challenge. There are also legal and regulatory risks and challenges,” the report noted.
What are the Key Proposals for CBDC in India?
The committee enables provision for approving Central Bank Digital Currency available in the Reserve Bank of India Act permitted by the Central Government. The Department of Economic Affairs will create a specific group by joining hands with different in-nation participants, including RBI, MeitY and the Department of Financial Services (DFS) for developing a peculiar and astute model of digital currency in India.
Also, the committee recommends that the DEA should take necessary steps to facilitate the use of DLT in the entire financial field after identifying its use. Moreover, the government have considered other participants to explore evolving appropriate regulations for the development of DLT in their respective areas, including RBI, SEBI, Insurance Regulatory and Development Authority (IRDA), Pension Fund Regulatory and Development Authority (PFRDA) and Insolvency and Bankruptcy Board of India (IBBI).
Is "Digital Rupee" the Future?
Infosys co-founder Nandan Nilekani in conversation with Angel investor Balaji Srinivasan on audio-based platform Clubhouse said, “Crypto as a transaction medium will not work as fast as UPI, which is targeting a billion transactions a day. But crypto has enormous capital.”
Also, “At the same time, the central bank has been working on launching its own digital currency, a step the government’s Bill will also encourage,” a government official told Reuters.
Reports suggest that China is about to bring Digital Yuan, while America and Japan are also considering introducing digital currency. Nilekani said RBI might bring CBDC soon, “as it is just a matter of time”.
