Explainer: Will India’s e-rupee be able to compete with cryptocurrency in the digital world? Know what the report says
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E-rupee vs Criptocurrencies: After launching the digital currency CBDC (Central Bank Digital Currency) i.e. E-Rupee, the Reserve Bank of India (RBI) has started working rapidly on its pilot project. RBI has also started work on pilot projects in about 12 cities of the country. Under this pilot project, about 50,000 customers and 5,000 shopkeepers have been added so far. There is a possibility that by the end of the year it will expand to the whole country. But, meanwhile, the question also arises that in the digital world, will RBI’s e-rupee be able to compete with foreign cryptocurrencies? What is its future in retail transactions? These questions are also present because most of the people of India have still not been able to rid themselves of the transaction of physical money. Come, let us know what is the future of India’s indigenous E-Rupee and how capable it is to compete with foreign digital currency cryptocurrencies? Is it strong in terms of data security?
What is CBDC?
A CBDC is a digital currency issued by the central bank of a sovereign nation. According to a report, it is freely convertible against physical currency issued by the same central bank. Similar to physical currency, one does not need to have a bank account to transact through CBDC. However, a major distinguishing factor between a CBDC and physical currency is that a CBDC will have a longer life. It cannot be damaged or lost in any physical form. It will be managed on a digital ledger, which may or may not be blockchain-enabled. Many other central banks around the world are exploring the possibility of putting CBDCs into practice.
cbdc two types
There are mainly two types of CBDCs. This includes retail (CBDC-R) and wholesale (CBDC-W). The wholesale form of CBDC can be used for interbank settlement and other wholesale transactions, while the CBDC-R will be used for retail transactions as an electronic form of cash. CBDC-W is expected to reduce transaction costs and make inter-bank markets more efficient. Pilot program for CBDC-W was started by RBI from 1 November 2022. A month later, from December 2022, the second pilot program for CBDC-R was started.
What does RBI say
According to RBI, E-Rupee is a digital form of India’s physical currency Rupee, which is already in use. The central bank released its concept note on CBDC on 7 October 2022. In the document, the central bank has included its inspiration, design and technical considerations behind the introduction of e-Rupee, as well as the policy aspects of bringing such changes in India’s monetary transactions.
Why questions are being raised on the future of CBDC
According to a report, the introduction of CBDC in India raises many important questions. In a country that wants to ban the circulation of cryptocurrencies, what does the central bank’s move mean? Finance Minister Nirmala Sitharaman once instructed the public to be careful while dealing in cryptocurrencies. Later he himself said that CBDC will be fully expanded in India by the year 2023. This makes it important to know how CBDC is different from cryptocurrencies and UPI transactions and how will it compete with cryptocurrencies in the digital world?
what does the study say
A study by the Atlantic Council Geoeconomics Center found that around 105 countries in the world are considering the possibility of introducing CBDCs, which would be mainly used for interbank transactions. Seen as a significant achievement in an estimated 35 countries by 2020. About 19 of the G20 countries are looking into the possibility of issuing a CBDC, and most of them have made considerable progress beyond the preliminary research stage.
cbdc vs crypto
According to a report published on 1 November 2022 on the website of English Outlook magazine, RBI Governor Shaktikanta Das had earlier described the crypto ecosystem as a ‘clear threat’. He further said that anything that derived a value and that was mere speculation without any underlying asset was mere speculation. The Center had also expressed a similar opinion. Later, he also imposed heavy taxes on cryptocurrencies and virtual digital assets. In the budget for the year 2022, Finance Minister Nirmala Sitharaman announced a tax of 30 percent on any income from the transfer of virtual digital assets such as cryptocurrency. Along with this, the government also imposed Tax Deducted at Source (TDS) of 1 per cent on any payment made in respect of transfer of virtual digital assets. Now if the government has such strong views against crypto, it is clear that it sees it as very different from the CBDC that the RBI is busy dressing up.
CBDC Risks
Compared to India, many countries of the world have been doing research on CBDC for a long time. Sweden’s central bank sought the pilot and architecture of its own CBDC for 5 years, but it did not make a final decision on issuing e-krona for a long time. The US Federal Reserve sought public views on CBDCs on how to come up with an official tender that would compete against private stable currencies. The digital euro is still under investigation. Japan is likely to take a decision by the year 2026. However, after knowing the views of its pros and cons regarding CBDC, Singapore started it here.
Data Security Concerns
The scrutiny of CBDCs around the world has raised a large number of concerns related to data security and financial stability. US Federal Reserve Chairman Jerome Powell said in 2022 that cyber risk was his primary concern around financial stability. A report by the UK’s House of Lords highlighted that privacy risks and cyber security remained the primary reasons for avoiding the development of CBDCs. According to a report, these apprehensions are not baseless. CBDCs have the potential to store sensitive user and payment data on a large scale. This data can easily be used by the wrong hands to spy on private transactions of citizens, secure security-sensitive details about organizations as well as individuals, and steal money.
Is India in a hurry with CBDC?
Speaking to Outlook magazine in November 2022, Sunil Agarwal, dean of the blockchain program at TalentSprint, said that CBDCs should go a long way in public adoption. This will take at least 10 years and will probably affect 1% of India’s money supply. So, if it will affect only 1 per cent, then it is important to pay attention to what kind of goals it is planning to achieve. He said that India’s timeline seems a bit early to understand the various nuances of introducing a CBDC. India had taken a hasty decision regarding demonetisation, the result of which turned out to be very serious.
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