What is Digital Rupee? All Indian Digital Currency (CBDC)

It seems that the Indian government wants people to use the local Digital Rupee instead. But since the announcement of the Union Budget, many of you may wonder - what is Digital Rupee, and is it a cryptocurrency like Bitcoin and Ethereum? To answer all your questions, we have provided an adversary for what Digital Rupee is, CBDC, and more. So without further ado, let's jump right in.

What is CBDC (CENTRAL BANK DIGITAL CURRENCY)?

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Before we can understand Digital Rupee, we need to know what CBDC is. CBDC stands for Central Bank Digital Currencies, and the term is used worldwide. It is a form of money that is in electronic form, issued by the Central Bank of the country. Example - The RBI is the Central Bank of India, so the RBI has the authority to issue digital currencies such as fiat currency (or paper money) already distributed.

It is also important that we understand the concept of fiat money before moving on. Fiat currency is a private currency, which means that the Central Bank of the country withdraws it, which, as a result, brings natural trust in the currency. It is not exempt from assets such as gold or silver, but the Central Bank declares it to be a legal tender by law. In summary, digital currency (Digital Rupee, as it may be called) will appear as a bond on the RBI balance sheet. Therefore, it will be an official tender in India.

So when the Indian government says the RBI will introduce the Digital Rupee, it means that the Digital Rupee will be the CBDC, the digital version of the fiat currency, and will be exchanged for money. Now, if you are wondering how it differs from other cryptocurrencies or the digital currency we use with UPI, Net Banking, etc., keep reading to find out more.

What is Digital Rupee?

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Now we are talking about Digital Rupee, an Indian CBDC that will be launched by the RBI sometime in 2022-23. Basically, a digital token of the official Indian currency and the RBI will issue and regulate this type of digital currency. In a 2022 Union Budget discussion, the Minister of Finance said Digital Rupee would use Blockchain and other technologies to develop the Indian currency.

Now, how the RBI will use Digital Rupee and what type of cryptography it will use is not yet known. We also do not know if Digital Rupee will work with other cryptocurrencies such as Bitcoin, Ethereum, etc. That said, we know that, unlike cryptocurrencies, Digital Rupee will be a medium-sized digital currency, although it will use Blockchain technology to keep the ledger safe.

When will the Reserve bank of India(RBI) release the Digital Rupee?

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According to the Union Budget announcement, the Indian government has set a release date for Digital Rupee somewhere between 2022 and 2023. The RBI has been covering the launch of its digital currency since 2019, but now we have a solid timeline. Expect the next Blockchain-based Digital Rupee to be live this year or early next year.

How is Digital Rupee different from other Cryptocurrencies?

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First of all, the basic difference between Digital Rupee and other cryptocurrencies is that the Digital Rupee of India is medium and can be controlled by the RBI. Although popular cryptocurrencies such as Bitcoin and Ethereum use a nationally divided model, which means that no single entity has complete control.

There is an issuer (RBI) with Digital Rupee, while some cryptocurrencies do not have an issuer. In fact, with cryptocurrencies, all users collectively maintain control, and all transactions are available in a public domain directory.

Another difference is that Digital Rupee can set up a cash track and can receive information after the transaction (who paid and received the money), which brings much-needed transparency to the financial system.

Although cryptocurrencies offer anonymity with their long series of encrypted numbers and letters. Anonymity is something governments don’t like, and that’s where Digital Rupee fills the shoe. As to how well the Digital Rupee of India will perform in terms of power consumption compared to popular currencies, we have no information about this yet.

How is Digital Rupee Different from Digital Cash (UPI, Net Banking, etc.)?

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The difference between Digital Rupee and Digital Cash is less technical, and it changes things more in the backend than people who use Digital Rupee. In a recent speech, T Rabi Sankar, Deputy Governor of the RBI, highlighted the differences between Digital Rupee and UPI as follows:

“CBDCs have some obvious advantages over other digital payment systems - payments using CBDCs are final and thus reduce the risk of payment in the financial system. Consider the UPI system where the CBDC is replaced by bank balances, as if cash were being given - the need for central bank payments is disappearing. CBDCs will also be able to enable global trade in real-time and less expensive payment systems, ”Sankar said.

He added, “It is possible for an Indian importer to pay his American trader in real-time in digital dollars, without the need for a consultant. This transaction will be the last resort, as if in cash, and will not require the US Federal Reserve system to be open for compensation. The time difference will no longer matter in terms of payment - there will be no 'Herstatt' risk.

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