RBI Notifications

RBI working towards ‘phased introduction’ of Digital Rupee

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Digital Rupee

Mains level : Central Bank Digital Currency (CBDC)

The Reserve Bank of India (RBI) is working toward a “phased implementation strategy” of a Central Bank Digital Currency (CBDC).

Do you know?

China’s digital RMB was the first digital currency to be issued by a major economy.

Central Bank Digital Currency (CBDC)

  • The phrase CBDC has been used to refer to various proposals involving digital currency issued by a central bank.
  • They are also called digital fiat currencies or digital base money.
  • The present concept of CBDCs was directly inspired by Bitcoin, but a CBDC is different from virtual currency and cryptocurrency.
  • Cryptocurrencies are not issued by a state and lack the legal tender status declared by the government.

Why India needs a digital rupee?

  • Online transactions: India is a leader in digital payments, but cash remains dominant for small-value transactions.
  • High currency in circulation: India has a fairly high currency-to-GDP ratio.
  • Cost of currency management: An official digital currency would reduce the cost of currency management while enabling real-time payments without any inter-bank settlement.

Features of CBDC

  • High-security instrument: CBDC is a high-security digital instrument; like paper banknotes, it is a means of payment, a unit of account, and a store of value.
  • Uniquely identifiable: And like paper currency, each unit is uniquely identifiable to prevent counterfeit.
  • Liability of central bank: It is a liability of the central bank just as physical currency is.
  • Transferability: It’s a digital bearer instrument that can be stored, transferred, and transmitted by all kinds of digital payment systems and services.

Various benefits offered

  • It is efficient than printing notes (cost of printing, transporting, and storing paper currency)
  • It reduces the risk of transactions
  • It makes tax collection transparent
  • Prevents money laundering
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