What are the benefits of a digital rupee?
There has been a lot of talk about the Central Bank Digital Currency (CBDC), or the digital rupee, which the RBI is working on. Many countries have said they are working on similar currencies of their own.
The need for digital currencies has increased due to the growing importance of cryptocurrency. Central banks around the world fear that the crypto industry, which essentially ignores regulatory oversight, could threaten the existential financial system and thus manage its rapid adoption by their peoples.
The supporters of the digital rupee say it could revolutionize the way we do business. Still, critics cite the lack of adequate infrastructure and hack-related threats to engage in more consultation. Amid this, the number of crypto users is growing with each passing day.
Benefits:
– Experts say a digital rupee will increase transparency and efficiency. It will be based on blockchain technology, enabling real-time tracking and ledger maintenance. It is also hoped that a digital rupee will promote financial inclusion and effective implementation of fiscal and monetary policy in a large country like India.
– The digital rupee will significantly reduce transaction costs and speed up account settlements as the transactions can be entered in the ledger in real time. Currently, banks update the ledger at the end of the day, which means there is a delay.
– It would also be available around the clock and there would be no need to open a bank account to transact in digital rupees.
– It will streamline cross-border transactions by reducing transaction costs. Today, exporters have to go through multiple layers of banks, each of which charges transaction fees. The digital rupee allows traders to bypass the bans and deal directly with each other.
– Unlike other cryptocurrencies, the digital rupee would be backed by the RBI. This reduces the risk of volatility.
– No physical damage. Unlike the banknotes, there is no risk of damaging a digital rupee through wear or loss during movement.
The RBI will launch the digital rupee in the next fiscal year (FY23).