RBI LAUNCHED CBDC ON 01 DEC AS A PILOT IN FOUR INDIAN CITIES.
WHAT IS CBDC - To those not well versed with digital currency technology, cryptocurrency and CBDC might seem tobe one and the same thing . But they aren’t.
of the central bank. It is Central Bank Digital Currency. In India the symbol will be e₹ or e-rupee. CBDC is a simple digitization of currency notes and coins. In same denominations available today i.e. 50 paise, 1 rupee, 2 rupees, 5 rupees, 10 rupees and so on. This digital money shall also have RBI Governor's signature just how a currency note does today.
2. 1st December 2022 has been a historic day. Considering the number of countries wanting to launch CBDC, RBI has pulled off a major feat, bringing the concept and technology together by being the 10th country in the world to have digital currency i.e e-rupee (e₹ ). There are many questions in people's mind.. How does the CBDC work? Does it have a physical image? can it be used on a regular QR where UPI works? what value will it add over UPI? What benefits over cash? roll out plan? will digital money in the wallet earn interest? etc.
This Q and A can help you understand CBDC better.
3. Just the way Reserve Bank of India prints and distributes paper money, they will now distribute e₹ to banks. Today India spends close to Rs. 8000 crores a year in printing physical cash. All that gets digitised. Cost goes way down, if not away. There is additional money, bank incurs to get cash from RBI and deposit and fill up ATMs. Now ATMs in future will never go empty if they still exist. We also cut thousands of trees and consume enormous quantities of ink in printing currency. Moving to Digital currency will be a huge gain for environment, and for our environment. Banks in turn will allow withdrawal of this money into a form of a digital wallet on one's phone, to use it further.
4. Its is easier to carry than cash. You can carry only limited cash in your pocket, it would be bulky beyond say 2000-2500 Rupees. CBDC is in the same denominations, it is easier because it is digital. Today, you can withdraw cash from banks, keep it in your wallet, and no longer require the bank account to make a transaction using cash. Same way, you can use this wallet to transact without the bank account as well. Meaning, I have 10 rupees in HDFC bank, 10 rupees in ICICI, I pull both into my e-wallet and then use that 20 rupees to buy anything without any linkage to HDFC or ICICI anymore as against Paytm and other payment Apps which are linked to your bank account and each transaction is from your bank account..
5. You can see the image of the currency notes that you own, on your mobile. Now, if you want to buy a cup of tea at a tea stall, you will scan a specific QR code and transact using your CBDC wallet. When you transact using currency notes, nobody refuses you a good or a service, right? It is the same thing. Merchants can no longer tell you 'I don't use Paytm, I only use PhonePe' etc.
6. Digital Rupee is more secure than cash. Today, in the physical cash system, if you lose your wallet, or misplaced your cash, you lost your money. But in the digital Rupee system, if you lose your phone, your wallet can be re-installed and the money can be recovered as the bank is the custodian of money. And unlike paper money, this digital money transactions can be traced since each e-Rs is numbered like the current paper currency. So all that under the table give cash and take cash gets thrown out of the window. Since this is a legal tender, you can use it for all purposes that you use cash for. Even for paying taxes, for example.
7. Digital currency is more anonymous than the current traditional digital transactions. Why? Because once you debit the account and move money to digital wallet, then all subsequent transactions are from “wallet to wallet”. individual transaction will not touch the Core Banking System and will not reflect in your bank account statement unlike say UPI. Just like how physical cash movement from your pocket to another person today does not show in your statement of account.
8. Like cash in your pocket today does not earn interest, there wont be interest on currency held in digital form.
9. In due course, as and when policy permits, the owner of the digital currency can transact with another person, even in offline mode, and as when they get to the network, synchronisation can be done.
10. CBDC will be an advanced form of payment. This is just the start, more use cases will evolve as we go along.
11. Any innovation whether UPI or GST had teething and adoption issues in the initial days. Who knew at the time of launch of UPI or GST they could be such mega game changers, that UPI will transact 120 lac cr a year or $1.5 trillion (Oct 22 annualised)
12. Counterfeiting is a big issue today. with CBDC will be impossible because every currency will have an address and verifiable.
13. We take pride in our country making such massive progress in the new digital era. Good wishes to all.
Who can use the retail CBDC?
14. What has been launched on December 1st, is the first phase of a pilot project that will cover select locations and banks in a closed user group (CUG) comprising participating customers and merchants.
15. The pilot initially covers the four cities of Mumbai, New Delhi, Bengaluru, and Bhubaneswar, where customers and merchants will be able to use the digital rupee (e₹-R), or e-rupee. Four banks will be involved in the controlled launch of the digital currency in these four cities: State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank.
16. The service will be subsequently extended to the cities of Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. Four more banks — Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank — will join the pilot.
What will the retail digital rupee be?
17. In effect, the retail e-rupee will be an electronic version of cash, and will be primarily meant for retail transactions. It will be potentially available for use by all — the private sector, non-financial consumers and businesses — and will be able to provide access to safe money for payment and settlement, as it will be the direct liability of the central bank.
And how will the retail digital rupee work?
18. The e₹-R would be in the form of a digital token that represents legal tender. It will be issued in the same denominations as paper currency and coins, and will be distributed through intermediaries, i.e., banks.
19. Users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones and devices, according to the RBI.
20. Transactions can be both person to person (P2P) and person to merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations. “The e₹-R would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks,”
21. The RBI has repeatedly flagged concerns over money laundering, terror financing, tax evasion, etc with private cryptocurrencies like Bitcoin, Ether, etc. Introducing its own CBDC has been seen as a way to bridge the advantages and risks of digital currency
No one will deny you service.
22. It is much faster, secure, and seamless. Without the failure rate (of UPI, let's say). You don't pay a paisa to a third party private provider for using their services to make payments.
23. Is it possible that people may not use it that much? Yes, and there are some shortcomings too. But all that depends on how the pilot goes. Let's reserve the negatives for now, because we need time to be able to baseline and call them out. As of this moment, we must congratulate the RBI and Modi govt for showing the resolve in implementing another path breaking reform.
NOTE - CBDC IS ENTIRELY DIFFERENT FROM THE SO CALLED AND MUCH HYPED CRYPTOCURRENCY
CBDC refers to the digital form of a country’s fiat currency, which is issued by the central bank of the country. Though it is in a digital form, it can be exchanged with the fiat currency of the country. This money is a liability of the central bank (RBI IN OUR CASE). Transactions are recorded in a centralised ledger and central banks retain full control over its supply. CBDC has the same value AND DENOMINATIONS as that of the country’s physical fiat currency (notes or coins).
Cryptocurrency, on the other hand, is a digital "ASSET" created to function as a means of exchange in trading. In addition to controlling the production of new units of a certain digital currency, it uses encryption to safeguard and verify transactions. The central banks of the countries have no role to play in cryptocurrency as such it is regarded more of an asset with dynamically changing values depending upon many factors and not divulged to the investors.
(PLEASE REMEMBER THAT CRYPTOCURRENCY IS OF NO CONSEQUENCE FOR YOU AND ME, THE PENTIONERS, UNLESS ONE WISHES TO LOSE THE HARD EARNED SAVINGS)
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