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Amid all the speculations around cryptocurrency, Finance Minister Nirmala Sitharaman in her Budget 2022 speech, has announced that the Reserve Bank of India is all set to launch its own Central Bank Digital Currency (CBDC) in the new financial year.
If you follow the trail of her announcement, you will notice that this move will expedite India’s digital economy. She also said that this would make the currency management system more efficient and cheaper.
What is Central Bank Digital Currency?
The CBDC will be a legal tender issued by the RBI; this kind of currency will hold the same values as previously released paper currency. The currency would be in electronic format and would be considered as a liability on the central bank’s balance sheet.
According to the RBI, it would be legal to exchange CBDC at par with money. Blockchain technology is the foundation on which CBDC will operate.
What are the benefits of digital rupee?
Digital rupee will advocate speed and reduce risk in financial settlement. The requirement for interbank settlement will disappear when individuals are transacting in CBDC. Global remittance will achieve more real-time and cheaper transactions without intermediaries.
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How digital currency is establishing itself in the global market?
Globally, there is a massive interest in implementing CBDC. Though it has not been released by the majority, pilot projects and research work are going on across the world. As per data showcased on RBI’s website, a BIS survey of central banks in 2021 found that 86% of central banks are questioning the potential for CBDC’s, 60% of the remaining banks are working on the technology, and the remaining 14% have deployed pilot projects.
The demand for cryptocurrency is increasing, and central banks are looking at legalizing it by creating their own digital currency.
The State Bank of India has also released a report on the current standing of CBDCs across nations, post the budget announcement. According to them, till December 2021, 87 countries have shown an interest in exploring CBDC. The number is considerably high compared to 35 countries in late May 2020. 9 countries have successfully launched digital currencies. Nigeria recently launched its digital currency, e-Naira. Major players, such as the central banks of the UK, the US, Japan and Europe are falling behind in the race. Countries like China and South Korea are in the pilot stage to roll out their digital currency.
In the nutshell
We have to wait till 2023, to get our hands on the digital rupee and to test what it has to offer. But the overall picture is looking optimistic, when digital currency is proposing safe, fast and cheap real-time transactions both at domestic and international levels.
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