Digital Rupee Explained: Will it be Replacing Other Cryptocurrencies in India?
Digital Rupee can be explained as the digital form of legal tender which will be created on Blockchain technology. On February 1, 2022, Union Finance Minister Nirmala Sitharaman said that RBI will soon launch its digital currency, Central Bank Digital Currency (CBDC) which will be created on Blockchain technology. By making her statement official, she mentioned that CBDC will launch in 2022-23 which will create a huge impact on the growth of the digital economy in India.
As the RBI is against the idea of accepting the virtual private currency, it already had indicated that CBDC is likely to be introduced soon in the Indian market. The launch of CBDC, according to the Finance Minister, will further boost India's standing as a digital economy, given its world-class digital payments infrastructure.
What Exactly CBDC is?
Central Bank Digital Currency (CBDC) can be understood as a legal tender that is issued in a digital form. It is similar to a fiat currency but in a different format and can be exchanged person-to-person with the money issued by the government. In simple words, CBDC is the same as conventional currency which will be introduced in a digital form, based on Blockchain technology.
As Finance Minister Nirmala Sitharaman said in her budget that this CBDC will work the same as the conventional currency and it is likely to be launched in the market soon in 2022-23. The government is claiming that the introduction of CBDC will change the market completely in terms of digital payments infrastructure.
How Digital Rupee will Work in India?
The introduction of CBDC as a digital rupee will ease the transaction system which is similar to fiat currency but in a digital form. CBDC was previously described in an RBI report as a safe, strong, and accessible alternative to real currency. According to the RBI research, it can also take on the complicated shape of a financial asset depending on numerous design decisions.
What is the mean of 30% Crypto Tax in India?
The government declared a 30% tax on private digital assets, which is commonly interpreted as an indirect acknowledgment of the presence of these tools. However, this does not imply that these assets are officially recognized as their whole. This is a subject of contention. At the very same time, CBDC might occur sooner based on current indicators.
Is Digital Rupee will Work similar to Bitcoin?
The answer is no. A CDBC is not the same as the other private Cryptocurrency. It is completely different from Bitcoin as it is a digital form of legal tender. Private Cryptocurrencies are fundamentally opposed to the historical understanding of money. Because they have no intrinsic worth, they are not assets or claims on commodities.
According to the RBI, private digital currencies do not reflect anyone's debts or liabilities. "There isn't one. They are not money (definitely not currency) as the term has historically been defined "T Rabi Sankar, Deputy Governor of the Reserve Bank of India, stated on July 22. This means that no banking firm, according to the RBI, can use private digital currencies as financial assets for transaction purposes.
What is the RBI's position on Digital Rupee?
According to Sankar, the implementation of CBDC has the opportunity to deliver considerable benefits such as reduced reliance on cash, increased money creation due to the lower transaction costs, and reduced settlement risk.
It may also result in a more strong, efficient, reliable, regulated, and legal tender-based payment method, according to Sankar.
What are the Dangers Involved with CBDCs, According to RBI?
Sankar detailed some of the hazards involved with CBDCs, stating that the existence of these currencies will make it simple for depositors to remove holdings if any bank is under threat. "The flight of deposits might be far faster than the flight of cash withdrawals," Sankar remarked.
But on the other hand, the mere existence of CBDCs may prevent panic "runs" because depositors know they may withdraw fast. According to the deputy governor, one effect might be that banks are compelled to keep a higher liquidity position, which could result in worse profits for commercial banks.
The Union Finance Minister has announced in her budget speech that government is likely to be introduced the “Digital Rupee”, Central Bank Digital Currency (CBDC). Following Authorization, the government will direct the central bank to begin preparations for the launch. In reality, the RBI has already started laying the groundwork. According to the government's and RBI's pronouncements, the Digital Rupee is scheduled to be launched this year.
Future of Private Virtual Currencies in India
There is still no clarity on this. The government has been working on a measure to regulate Cryptocurrencies, but it is not scheduled for consideration during the current Budget session. In terms of private virtual currencies, the central bank is likely to continue in a wait-and-see position until the government clarifies regulations.
