The Reserve Bank of India intends to establish a central bank digital currency or virtual money in the country in stages. This indicates that our understanding of money and present techniques of money transactions may alter drastically in the future.
On July 22, at a webinar hosted by the Vidhi Centre for Legal Policy, RBI Deputy Governor T Rabi Sankar stated that the central bank is now working on a “phased implementation strategy” to bring about the digitized rupee. Sankar further said that CBDC (central bank digital currency) is likely to be in the arsenal of every central bank going forward. Setting this up will require careful calibration and a nuanced approach in implementation. Drawing board considerations and stakeholder consultations are important, he continued. Sankar stated that while digital currencies may lessen the need for banks to keep deposits, the impact would be limited because they cannot pay interest.
So, exactly what is CBDC?
Central bank digital money, often known as virtual currencies or digital currency, is legal tender issued in digital form by a central bank. In basic words, it is the same as a contemporary banknote but in electronic form, and it cannot be converted or pulled in paper form (cash) from a bank or an automated teller machine.
What makes it unique from cryptocurrency?
Cryptocurrencies, such as Bitcoin, have one important distinction: they function more as commodities than as the precise value of a monetary system’s currency. One Bitcoin, for example, does not equal Rs 1. The greatest distinction is that one must invest in Bitcoin and acquire it with dollars. Another significant difference is that cryptocurrency is very volatile and has no legal issuer, but central bank digital currency has the RBI as the issuer, which implies that the central bank digital currency may be called money in every meaning of the term.
Meanwhile, China’s new Digital Currency Electronic Payment (DCEP) – a digital payment and processing network operated by the Central Bank of China – and digital currency, the digital yuan (e-CNY), are projected to totally replace physical cash. The DCEP, which was unveiled in 2019, began its testing in April 2020 and has since been gradually rolled out in key cities including as Shanghai, Chengdu, and Beijing. Its meticulous execution demonstrates the Chinese government’s seriousness about the DCEP initiative.
In a similar move, the Bank of Japan started the first phase of its central bank digital currency (CBDC) experiment in April of this year, joining rivals striving to match the quick pace of private innovation. It aims to move on to the second phase next year, which would define some of the essential tasks of a digital yen, such as which businesses will act as middlemen between the BOJ and deposit holders.