Ever since Finance Minister Nirmala Sitharaman made the announcement of a Reserve Bank of India (RBI) backed digital rupee from next fiscal year, CBDC has been the latest buzzword for many of us. who wonder: what is it and how will it work? For the uninitiated, CBDC (Central Bank Digital Currency) is the legal tender of a particular country as it is issued by the central bank in digital form.
As the government announces its proposal to launch a digital rupee very soon, curiosity is high as to how its transaction will unfold. Will it be different from UPI payments or will it be similar? Will it be like a money transfer?
Although the government has yet to reveal the modality, Mint has spoken to experts to find out how it might play out in the future.
Vipin Kumar, CEO of TechnoloaderPvt. Ltd said launching a digital rupee using blockchain would not be a daunting task for the government.
“People in India are already in favor of the concept of digital transactions or payments in the form of UPI ID and barcode. Currently, a large number of people are making digital transactions in their way of life. If the government plans to launch a digital rupee using the blockchain; Accepting it won’t be a daunting task either. The government needs to refurbish the technical aspects. Only the mobile apps one wants to update and the UPI id entails replacing with the wallet address, as the blockchain works on the wallet addresses,” said Vipin Kumar.
Digital money, built using blockchain technology, will be transferred from one digital wallet to another like other crypto assets. “It will require entering the recipient’s wallet address to transfer the money. This would be as good as today’s UPI transactions where the value of money is transferred from a wallet or bank account to another,” Kunal Jagdale, Founder, BitsAir Exchange
We should wait for the SOPs on the digital rupee and the denominations in which it will be launched, he added.
Payment via digital currency or Rupee will be done in real time and Indians will be able to pay abroad in their currency without the need for an intermediary. This would eliminate the time zone difference across the world.
“As the use of the digital rupee increases this could also benefit things like cross-border remittances, an environment could be created for interoperability whereby faster real-time remittances occur” , said Kunal Jagdale.
The government has made it clear that the digital currency will be exchangeable at par with cash. Payments using CBDCs will reduce settlement risk in the financial system and the need for interbank settlement.
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