The government today announced that they plan to launch a Digital Rupee based on blockchain technology. The budget announcement is seen as a positive step by the government to embrace the innovations taking place in the Web 3.0 space. It is important to understand what the digital rupee is and how it is expected to impact the Indian financial industry.
Here is all you need to know about the Digital Rupee:
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What is the Digital Rupee?
Digital Rupee is a CBDC that will be launched in 2022-23 powered by blockchain technology. It is important to note that blockchain is the same technology that powers several cryptocurrencies and NFTs across the world.
As blockchain is built on the distributed ledger technology in which transactions are updated on a real-time basis and cannot be duplicated, it is believed that the technology is a more secure form of money and asset transfer as compared to an individual server of banks.
The Finance Minister said in her address that the launch of the Digital Rupee is expected to create an efficient and cheaper currency management system.
Who will launch Digital Rupee?
The Reserve Bank of India is expected to launch the Digital Rupee in 2022-23.
What is a CBDC?
CBDC, short for Central Bank Digital Currency, is a legal tender that is issued by the central bank albeit in a digital form. It is the digital version of the fiat currency that can be interchanged for the same amount.
Why CBDC is required?
The need for CBDC was felt due to the rise of blockchain technology that provides a more secure ecosystem for digital currencies. As the currency is backed by the central bank, it can be looked at as an extension of the fiat currency system that is regulated by the Reserve Bank of India.
What does the budget announcement for Digital Rupee mean?
The budget announcement for the Digital Rupee is being viewed positively by the industry because it clearly shows the faith of the government in blockchain technology. Also, the faith shown by the government is expected to boost the number of innovations coming up from India in the Web 3.0 space.
How is CBDC different from decentralized virtual currencies?
A CBDC or Digital Rupee is backed by the central bank that can be transacted using wallets powered by blockchain technology. This is different from decentralized virtual currencies especially because it is backed by the central bank. The decentralized virtual currencies are not issued by any central bank and as a result, cannot claim the status of legal tender.
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Is India the only country to launch a CBDC?
No, India is not the only country to launch a digital currency. In October 2021, Nigeria has launched eNaira. It is a non-interest-yielding CBDC from Nigeria. Similarly, the Bahamas and other islands in the East part of the Caribbean have launched digital currencies in the recent past.
