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<\/p>\nWith the spurge in digitalization over the last decade, the first ever-soaring up of digital currencies was seen when crypto currencies took a new flight in the world economy, followed by the Indian economy.<\/p>\n
It is only time that economies launch their very own digital currencies owing to the fast transfer and transaction times associated with them.<\/p>\n
Not only that, payments done through digital currencies are extremely low cost and truly instant compared to physical notes and coins.<\/p>\n
India is about to witness its very first trials of the Central Bank Digital Currency by RBI \u2013 digital rupee in the month of December this year.<\/p>\n
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Before jumping to the criticality of digital currency, let us first understand what it exactly is.<\/p>\n
The Reserve Bank of India defines Central Bank Digital Currency as a legal tender that is issued under or by a central bank in its digital form. It holds the same value\/worth as the prevailing fiat currency in the market and is exchangeable in the same ways as physical currency.<\/p>\n
The e-currency launch is an innovation that has taken place in order to change the ways in which currency can be held and used, to serve a futuristic purpose. The RBI Deputy Governor has also mentioned how the Indian digital currency is exactly the same as the physical currency, only existing in a different form.<\/p>\n
Digital currency can also be called the virtual form of physical currency.<\/p>\n
CBDC is going to offer much higher flexibility, efficiency, and cost-effectiveness by allowing people a seamless money handling situation. Just like physical currency, e-currency is also going to act as a liability on the central bank when issued.<\/p>\n
The sovereign electronic currency can also be exchanged at par with cash, as mentioned by Mr. Sankar \u2013 RBI deputy governor.<\/p>\n
If you know how to pay through a digital wallet, you already know most about how payments with CBDC are going to work. The Reserve Bank of India will issue a fixed supply of the digital money that citizens of India will receive in electronic form and spend in the same manner.<\/p>\n
This money, however, will be allowed to be exchanged for hard cash if needed.<\/p>\n
By paying through CBDC, there will no longer be a need for an interbank settlement since the money paid or received would be directly settled, just how it is settled when you receive or pay a physical note for a transaction.<\/p>\n
Unlike Cryptocurrencies, CBDCs are not decentralized.<\/p>\n
It is going to be regulated and issued by the respective country’s central bank or monetary authority. Hence, wealth and money ownership will be transferred or passed on without any complications with a simplified implementation of all monetary and fiscal policies.<\/p>\n
This in turn will lead to an improved data reconciliation and greatly optimize resource distribution all around the country.<\/p>\n
Apart from India, 83 other countries have already started to pursue the development of CBDC since 2011. From Sweden to the United States, there is hardly any major economy that has not already started to go digital with their money.<\/p>\n
India\u2019s central bank, too, thinking along the same lines, has understood the increasing demand for digital currencies, especially after the rise of private digital currencies like Bitcoin and Ethereum, which we collectively also call cryptocurrencies.<\/p>\n
All central banks offering digital currencies act as a sovereign-backed and reliable alternative to such private digital currencies, securing people against the volatility and regulatory policies of the same.<\/p>\n
The cost of issuing digital currencies is also much lower than printing and distributing the current fiat currency in the economy. Once the digital rupee is created, it can be disbursed among the population without any hassle, at almost zero cost.<\/p>\n
Since the RBI would be able to easily monitor the digital currency, it would make all the e-cash circulating in the economy traceable, unlike physical cash.<\/p>\n
This would enable the central bank to control the digital currency and also bring down issues that come along with hard cash, like corruption and bribing.<\/p>\n
In the long run, it is going to act as a building block for India\u2019s economy, with everything being digitalized and monitored under a network of high security and easy traceability.<\/p>\n
The covid-19 pandemic triggered India\u2019s central bank to hurry up the exploration, planning, and implementation of digital currency. With the economy shutting down and businesses moving online, payments have immensely gone digital.<\/p>\n
People now prefer using e-payment modes instead of hard-cash to also avoid any unnecessary contact with strangers who might be infected. Thus, launching an e-currency was a smart move, after all, in order to keep up with the changing times.<\/p>\n
Last but not least, shifting to e-currency will provide a definite financial inclusion, especially in a country as wide and diverse as India, as people everywhere and anywhere will have financial access and soundness with respect to their money.<\/p>\n
This would help people in remote areas have easy access to money that they can spend and even send home when required, without the hassle of shipping hard cash through post offices.<\/p>\n
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