Digital Rupee Coming Soon: But, Is India Ready?
According to unofficial data, around 7 million Indian investors have poured in their capital in the cryptocurrency tub.
Right from being the social media star to becoming a trend, the cryptocurrency has lured many naive investors and they happily joined to escape the ‘FOMO’ moment.
Convey Worrier, believe it or not, but many crypto-investors have joined the crusade as they went after the shiny side of rising prices!
Note: If you also want to know how to buy cryptocurrency in India, click here
Here is a graph depicting the same.
The graph shows that in 2020 the online population’s interest has rapidly surged as far as owning cryptocurrencies is concerned!
Did you too invest in cryptocurrency to skip FOMO?
Introduction
The cryptocurrency fever has spread like wildfire and even the big daddy of Indian banks does not want to miss out on leveraging the advantages of digital currency.
Why else would it propose it, despite being unclear on cryptocurrency’s legality in India?
The Awaited Law: “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an ‘official digital currency, was to be introduced in Parliament’s Budget session, but was held up as the government continues discussions with stakeholders.”- Indian Express
Was that too much information to register on a go?
Are you intrigued about the proposed sovereign backed digital currency?
Above all, are we Indians ready for the concept of the digital rupee?
Which other countries are under plans to introduce something like this?
Let us ponder over all these questions one by one.
Defining A Digital Currency
If you are wondering, is cryptocurrency legal in India, then let me tell you it is not illegal but unregulated!
Well, the answer to this question is in itself the biggest premise for initiating a digital currency in India.
No matter how much fondness is garnered by cryptocurrency, you cannot ignore the fact that lack of legal and authoritative vigilance is one of the cons associated with it.
Right?
Governments all around the world are sceptical about accepting cryptocurrencies with open arms but they are inclined towards the underlying concept of blockchains. The Reserve Bank of India has corresponding views.
This is where the idea of Central Bank Digital Currencies (CBDC) steps in!
In simple words, CBDCs are the digital forms of any currency. For instance, the CBDC in India would be the digital version of Rupee whereas for the United States it would be a digital dollar.
If we talk with respect to India, then CBDCs would represent a digital version of the sovereign currency that would be issued by the central bank (RBI). But, you already must be using digital payment systems in the form of UPI, RTGS, NEFTs, etc.
So, you must be thinking about how CBDCs differ from these options if the main idea is to go digital, right?
Well, do not put too much thought into this, as the only difference between CBDC and the existing digital payment system would be the use of blockchain technology in the former one.
The Technology Behind Central Bank Digital Currencies
As Economic Times quoted, “CBDCs use distributed ledger (records/archives) technology (DLT) which is typically deployed in a hybrid architecture i.e existing central bank and payment infrastructure + DLT for movement, transparency, workflow and audit.”
You must be well aware around the world the ecosystem of cryptocurrency is surviving on 2 pillars, the miners and the users (public blockchain). While in the case of CBDC, the blockchain is private and since it would be issued by the central bank, its flow would be under surveillance.
The most important feature of CBDC is the ‘stability of its price’. Yes, you read it correctly, CBDC’s value is not too volatile and independent of the sentiments of the consumers.
So, dear readers, unlike cryptocurrencies the highs and lows of the prices won’t give you an adrenaline rush!
The RBI and The Digital Currency
A summary of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 states: ‘It sought to create a facilitative framework for the creation of the digital currency to be issued by the Reserve Bank of India.’
After RBI launched a regulated and official digital currency, what was your reaction?
Please share your views in the comment section below, we would love to know your side!
Time and again the RBI has openly exhibited its reservation and worry regarding fraudulent activities that take place in the cryptocurrency network. The most recent being frauds in the name of fake Bitcoin giveaways. If you want full insight into this matter, click here.
Back in 2018, RBI has prohibited all the official entities as well as banks from extending their support to cryptocurrency-based transactions. But, in March 2020, the Supreme Court of India revoked the decision quoting it as unconstitutional.
All done and dusted yet the big daddy of the Indian banks is not convinced!
Well, you only think why would it when it’s RBI’s duty to nurture the stability of the financial system of the country.
Do you agree?
The RBI still finds cryptocurrencies to be highly volatile and the prevailing frauds cannot be ignored too. Therefore, the government is under plans to implement a law (through the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021) to ban all private digital currencies and push an RBI backed digital rupee.
What is Known About Digital Rupee So Far!
According to Livemint, “India’s upcoming digital currency will minimize transaction settlement processes by using a private blockchain platform, making transactions more cash-like and giving the central bank tighter control over the functioning of the financial system, said two people aware of the matter.”
India is Not Alone in CBDC Race
India is not the only country that is considering the possibility of implementing a safer version of the blockchain currency.
Leading the march in this category is China that has already begun the testing of CDBC in the form of digital Yuan. “In order to protect our currency sovereignty and legal currency status, we have to plan ahead.” — Mu Changchun (Deputy Director of the People’s Bank)
Secondly, the Federal Bank of the United States has been contemplating the launch of the digital dollar for quite a few years now and it was among the first authorities in the world to bring forth the discussion of creating CBDCs.
Thirdly, the European Central Bank (ECB) displaced its imperative stance over CBDCs through a report published in October 2020. A digital euro would be an electronic form of central bank money accessible to all citizens and firms.” — ECB
Is India Ready for a Digital Currency?
After discussing CBDCs in-depth it is now time to bring our focus on the main question, are we ready for a digital rupee?
Do we have the right resources for a homogenous implementation of this concept?
Where do we stand as far as digitization is concerned?
Before you proceed ahead, have a look at the short infographic that depicts statements by cryptocurrency industry experts:
- “The extended lockdown has not hurt Zebpay’s business. More likely, being at home gives people time to download our ebooks, learn about crypto, and decide to join Zebpay.” — Vikram Rangala (Zebpay Chief Marketing Officer)
- “Our trading volume before the lockdown in India used to be around $1M. It has grown over 10X in just 60 days.” — Nischal Shetty, CEO of cryptocurrency exchange Wazirx
The statements are a reflection that during the cryptocurrency boom of 2020–21, Indian investors are showing an increased interest in digital currencies by investing around Rs 10,000 crores in cryptocurrencies so far!
So, think about this, if this set of investors get access to RBI backed, less volatile and safe digital currency, they will receive it with open arms.
Do you agree?
The centralized blockchain technology that is likely to be used in the digital rupee would ensure transparency and authorization. Private cryptocurrencies are highly volatile since they are market-driven but a digital currency would be less volatile and free from issues such as tax evasion as well as money laundering.
All in all, it will provide financial inclusion to the country’s economy!
The Challenges
The limelight of digital currency cannot be ignored but a proper launch and implementation of the same come with a set of challenges.
There are many parts of the country where internet penetration is yet to reach an average figure. So, the digital rupee must be transferable without the need for the internet too. Undoubtedly, offline functionality is required.
The RBI needs to explore the devices through which the digital rupee can be accessed apart from smartphones. Accessibility and storage is a big area that needs to be explored properly, before launching a digital rupee.
In a nutshell, for a smooth execution, the banks, fintech companies, financial institutions and payment aggregators will have to work in unison. This would ensure the perfect integration of the digital rupee into our financial system.
The Indian digital currency name and the launch date is unknown. What do your estimations say about the same? This brings us to the end of the blog. Hope you enjoyed reading the content on Convey, we would like you to share your suggestions!