Central Bank-backed Digital Currency

In the budget speech, The Finance Minister made a big announcement on India’s first digital currency. The Finance Minister said that RBI’s digital currency ‘Digital Rupee’ will be launched at the beginning of the next financial year itself. Digital Rupee will be introduced through the use of blockchain technology and other technologies. This will give a big boost to the digital economy, make currency management more efficient and less costly. The digital currency of a central bank is called the Central Bank-backed Digital Currency (CBDC). Which will be issued by the central bank. The digital currency is also included in the balance sheet of the central bank of the country and can be converted into the sovereign currency of the country. Digital currency is basically two types one is for retail and another is for wholesale. The retail digital currency is used by the general public and companies. While wholesale digital currency is used by financial institutions.

CBDC of the Reserve Bank of India will be a legal tender. The backing of the CBDC will be the central bank of India. It will be like normal currency but in digital format. Just like people give currency in exchange for goods or services, in the same way, we will be able to transact with CBCD. In simple words, we will be able to use digital currency in our normal rupee form.

The Reserve Bank of India has proposed that digital currency in the country should also be kept under the definition of bank-note and for this, the RBI has planned to amend the law. Intermediaries will be needed to transfer the digital currency of the Central Bank.

However, in general, talk people take digital currency the same as cryptocurrency. But there is a difference between digital currency and cryptocurrency. The digital currency is authorized by the central government of the country whose central bank issues it. So there is no risk involved and it can be used for the purchases in the county. Cryptocurrency is a free digital asset. It is not under the jurisdiction or control of the government of any country or region. Cryptocurrencies like bitcoin are decentralized and do not belong to any government or government entity.

It would require legal changes to bring in a CBDC, as the existing provisions under the Reserve Bank of India Act have been made keeping the currency in mind physically. This would result in the need for amendments to the Coinage Act, the Foreign Exchange Management Act and the Information Technology Act as well. In such a situation, the government may give some important indication about these legal changes in the budget or make some announcement. This will make India the strongest economic superpower in the world in the coming years, in view of which it will also have to spread its feet in the world of digital currency. The CBDC can play a big role in this regard.

By Ankur Yadav