What is RBI Digital currency in circulation from 1st November 2022?

The Reserve Bank of India (RBI) will launch first pilot of Digital Rupee for the wholesale segment on November 1, 2022 (Tuesday), a statement said on Monday.

The Reserve Bank of India (RBI) announced on Monday that from November 1, 2022, it will begin pilot launches of the Digital Rupee (eâ1) for specific use cases. According to the notification, the first Digital Rupee pilot will be in the Wholesale segment (eâ1-W) and will begin on Tuesday.

9 banks identified for participation in digital rupee’s wholesale pilot

The nine banks are 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, the RBI said in a release. 

RBI, which has repeatedly expressed its opposition to private digital currencies, proposed to the government in October last year to broaden the scope of the paper rupee to include digital currency.

Union Finance Minister Nirmala Sitharaman had earlier announced that the RBI will launch a CBDC in 2022-23, which is the first official statement from the Union government on the much-anticipated digital currency’s launch. According to the FM, the introduction of CBDC will boost the digital economy and will be based on blockchain technology.

What is Digital Rupee?

A Central Bank Digital Currency (CBDC) or Digital Rupee is a digital form of currency notes issued by a central bank. Digital currency or rupee is an electronic form of money, that can be used in contactless transactions. Presenting Union Budget 2022, Finance Minister Nirmala Sitharaman announced that the Reserve Bank of India (RBI) would be rolling out its digital currency soon.

CBDC can be classified into two types

1) Retail (CBDC-R): Retail CBDC would be potentially available for use by all

2) Wholesale (CBDC-W) is designed for restricted access to select financial institutions.

Difference between digital rupee and cryptocurrency

A cryptocurrency is a decentralised digital asset and a medium of exchange based on blockchain technology. However, it has primarily been controversial due to its decentralised nature, meaning its operation without any intermediary like banks, financial institutions, or central authorities. On the Contrary, Central Bank Digital Currency (CBDC) issued by the Reserve Bank of India (RBI) will be a legal tender in a digital form.

“The digital rupee will be different from Bitcoin, Ethereum and other cryptocurrencies in the sense it will be backed by the government. Secondly, having an intrinsic value on account of government backing, the digital rupee will be equivalent to holding a physical rupee equivalent,” said Manoj Dalmia, Founder and Director, Proassetz Exchange.

Benefits of Digital Rupee

Apart from reducing the transaction cost, having a digitised currency will make it easier for governments to access all transactions happening within the authorized networks. “It will become impossible to avoid the gaze of the government, thus subjecting every transaction to relevant laws within the country. Hence, the government will have better control over how money leaves and enters the country, which would allow them to create a space for better budgeting and economic plans for the future, and overall a much safer environment,” said Archit Gupta.

Another benefit of digital currency is that they do not get torn, burnt or physically damaged. Neither can they be physically lost. “The lifeline of a digital currency will be indefinite compared to physical notes,” he added.

The RBI has been exploring the pros and cons of a central bank digital currency for some time and is working towards a strategy to implement it in a phased manner, it said earlier this month.

What is Central Bank Digital Currency (CBDC)

The Reserve Bank of India defines Central Bank Digital Currency (CBDC) as a digital form of legal tender issued by a central bank. Simply put, it is a digital form of fiat currency, i.e. The Indian Rupee. As a result, it can be exchanged for fiat currency one for one.

As per RBI, “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.” 

CBDC will have all of the advantages that we see with cryptocurrencies and digital forms of payment. To begin with, a digital currency can never be torn, burned, or physically damaged. They are also not physically lost. In comparison to notes, the lifeline of a digital form of currency will thus be indefinite.

The Digital Rupee will bring with it another significant advantage in terms of cryptocurrencies which is that it will be governed by a central authority, reducing the volatility risk associated with other digital currencies such as Bitcoin. 

The RBI has repeatedly expressed concerns about private cryptocurrencies such as Bitcoin, Ether, and others being used for money laundering, terror financing, and tax evasion. The introduction of its own CBDC has been viewed as a means of bridging the benefits and risks of digital currency.

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