In this article, we will discuss what is a digital currency, whether Is CBDC similar to cryptocurrency or not, and what is the scalability of CBDC against the UPI. So, let’s get started!
What is Digital Currency?
CBDC Vs. Cryptocurrency:
- Digital Currency is the digital version of currency notes.
- This digital currency is produced by Central Bank and is known as Central Bank Digital Currency (CBDC).
- The CBDC will be the first instance of a sovereign issuer of digital money.
- A CBDC can be used for retail transactions, wholesale payments, and in financial markets to transfer money without the need for intermediaries.
- CBDC can also be used as an additional channel for monetary policy transmission, lowering the cost of transactions, and providing new channels for liquidity management.
Scalability CBDC Vs. UPI:
- Globally, China has already launched its digital currency- Digital Yuan, While India is in pilot mode and the US is considering launching the same.
- Cryptocurrency is a decentralized system that uses blockchain technology. Similarly, the Digital Rupee is also created using blockchain technology but with a centralized system.
- Further, cryptocurrencies do not have any inherent value whereas Digital Rupee will have its inherent value.
- Digital Rupee transaction will track by RBI while cryptocurrencies transaction is hard to track.
Retail Pilot Programme of Digital Rupee:
- Unified Payment Interface (UPI) is bank-to-bank transactions but there is no role of banks in digital currencies, but RBI-the central bank will play the pivotal role here.
- Currently, the CBDS is being used for the wholesale purpose (Bank-to-Bank) during the pilot period. For Example, the digital rupee is used for lending loans between 2 banks in the pilot project. Currently, 9 Banks in India have participated in this pilot project.
- Despite there being less or no role of commercial banks in the digital rupee play, it doesn’t seem that RBI wants to reduce the autonomy of the banks over several currency functions.
Benefits of Digital Currency:
- RBI has initiated the pilot project of the Digital Rupee or e-rupee or eâ1-R from December 1.
- Initially, RBI partnered with 4 banks- State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank in Mumbai, New Delhi, Bengaluru, and Bhubaneshwar.
- During the starting period, this pilot project will apply to the Closed User Group (CUG) which will include participating customers and merchants.
- Move towards digital currency with accountability
- Proper tracking of funds initiated for various policies and programmes.
- Utilized for Conditional Payments
- Prevention of fraud and leakages
What Should Investors Do:
Complete adoption of Digital Currency may take a little too big time but it is a newer and innovative measure in the financial system of India. Currently, the Digital Rupee is in pilot mode for wholesale and retail, and will it be an interesting thing to watch how this project turns out.