Digital Rupee

Syllabus: General Studies Paper 3

Context

• Finance Minister Nirmala Sitharaman in the budget announced the launch of the Digital Rupee — a central bank digital currency (CBDC) — 2022-23 onwards.

Authority

• The Reserve Bank of India will launch the CBDC from the upcoming financial year.
• This follows the government’s plans to launch the CBDC that will be backed by blockchain technology.

CBDC

• CBDC is a legal tender issued by a central bank in a digital form.
• It is similar to a fiat currency issued in paper and is interchangeable with any other fiat currency.

Requirement of CBDC

• According to Investopedia, the goal is to provide users with convenience and security of digital as well as the regulated, reserve-backed circulation of the traditional banking system.

Announcement in budget

• The announcement in the Budget essentially expresses the government’s intention on cryptocurrencies and other virtual currencies.
• The RBI has on several occasions flagged concerns of money laundering, terror financing, tax evasion, etc with private cryptocurrencies like Bitcoin, Ether, etc and had planned to announce its own CBDC.

Likely Impact

• There are several models proposed by technology experts and evangelists on how the Digital Rupee could be transacted but a formal announcement by the Reserve Bank of India will likely detail how the Digital Rupee will be transacted by citizens.
• One chief difference will be that a Digital Rupee transaction will be instantaneous as opposed to the current digital payment experience.

The Indian Express link

https://indianexpress.com/article/explained/explained-what-is-the-digital-rupee-announced-by-sitharaman-in-budget-7751109/

Question- Write a short note on India’s central bank digital currency (CBDC)- digital rupee.