After continuous opposition to cryptocurrency, the Indian government is finally ready to release its Central Bank Digital Currency (E-Rupee) which will be the digital version of Indian currency. Last Friday an official paper “Concept Note” of 50 pages was released by the agency which included a discussion of India’s own CBDC and the planned pilot test runs for it before releasing it.
According to the RBI, the main purpose of releasing this Central Bank Digital Currency is to create awareness among people about CBDCs. The discussion of releasing a CBDC was there from the start of February 2022 when the government acknowledged that the addition of a Central Bank Digital Currency would boost India’s Economy.
The Central Bank said that the unregulated adoption of cryptocurrencies puts India’s financial and macroeconomic stability at risk, making it harder for the government to set and execute monetary policy, and highlighted the necessity for a CBDC. The idea of CBDC was already mentioned by Finance Minister Nirmala Sitharaman during the 2022-2023 budgeting. The speech also covered the government’s intention regarding cryptocurrencies.
Currently, the E-Rupee will go through a set number of Pilot tests and RBI intends to introduce the e-rupee as an alternate type of currency issued alongside paper money after these test programs. According to the released document, E-Rupee is supposed to be an alternative to the existing cryptocurrencies.
What was in the Concept Note?
The official report or the concept note included the vision of India for this E-Rupee, and how this will be tested. In the 50 pages, the report included a lot of information about the adoption of CBDC all around the world where a large number of countries are working on releasing their own Central Bank Digital Currency. The list included around 16 countries along with China whose Central banks are all in favor of the CBDC adoption.
In the statement, the central bank described the goals, options, advantages, and risks of granting a Central Bank Digital Currency in India. The memo also aims to outline the Reserve Bank’s strategy for introducing the CBDC.
The paper included that “right now, we are in the foreground of a breakthrough movement in the evolution of currency that will completely change the very characteristics of money and its functions.” In the evolution of floating currency, “CBDCs are being considered as a promising invention and as the next phase in the world of currency because of its characteristics as faster, cheaper and easier to use.”
The RBI also stated that “CBDCs will offer the public the benefits of virtual currencies while providing consumer protection by avoiding the negative social and economic effects of individual digital currencies.”
How will this E-Rupee help India?
This will be released in 2 versions where one would be for the general public or for retail (CBDC-R) to make retail payments and the other one will be for settling the transactions between the Bank and Wholesale transaction (CBDC-W).
According to the RBI, a Central Bank Digital Currency might ultimately increase the reliability, strength, and efficiency of payments. It also acknowledged that CBDC could be better for small transactions to be as anonymous as using cash, but it should be noted that ensuring privacy would be difficult.
According to the central bank, It is highly doubtful that any Central Bank Digital Currency would be intended to fully match the degrees of anonymity and privacy currently available with physical cash, because of the possibility that anonymous digital currencies could promote secret profit and illegal transactions.
The paper also covers important issues including design and technological decisions, potential uses for the Digital Rupee, issuance procedures, etc. It analyzes privacy concerns and looks at how the adoption of CBDC will affect the banking system, monetary policy, and financial stability.
According to the statement, RBI will continue to communicate about the unique characteristics and benefits of the E-Rupee.
For more content related to cryptocurrency, check-out Suncrypto Academy.