RBI just launched its Digital Currency
This makes India, one of the first countries to adopt a blockchain-based currency system
But wait! Is it a cryptocurrency?
Here's what you need to know:
This makes India, one of the first countries to adopt a blockchain-based currency system
But wait! Is it a cryptocurrency?
Here's what you need to know:
So let's start it from the very basics and answer a few easy questions.
What is CBDC?
Central Bank Digital Currency is a sovereign currency issued by Central Bank or we can say it's the digital form of a country's fiat money.
What is CBDC?
Central Bank Digital Currency is a sovereign currency issued by Central Bank or we can say it's the digital form of a country's fiat money.
So basically it's the same Indian Rupee that we've been using for the past 75 years but in the digital form.
And to answer your old query about CBDC being a cryptocurrency, the answer is a NO.
It's not a cryptocurrency but it does use Blockchain technology.
And to answer your old query about CBDC being a cryptocurrency, the answer is a NO.
It's not a cryptocurrency but it does use Blockchain technology.
Cryptocurrencies are crypto assets with payments as one use case. For example, Bitcoin is a βstore of valueβ like gold.
But CBDC serves as both- a 'medium of exchange' as well as a 'store of value'.
But CBDC serves as both- a 'medium of exchange' as well as a 'store of value'.
Now RBI has issued its own CBDC- which is a legal tender and will be accepted by all.
There are broadly 2 types of CBDC according to RBI-
1. Wholesale CBDC (CBDC-W)- which has been piloted on November 1; and
2. General CBDC (CBDC-R)- which might get piloted in the next month.
There are broadly 2 types of CBDC according to RBI-
1. Wholesale CBDC (CBDC-W)- which has been piloted on November 1; and
2. General CBDC (CBDC-R)- which might get piloted in the next month.
CBDC-W will enable the banks to settle Inter-banking transactions, G-Sec segment, and run the capital market with more efficiency and security.
RBI started a pilot program with 9 banks including SBI, HDFC Bank & ICICI Bank to settle secondary-market transactions in G-Sec.
RBI started a pilot program with 9 banks including SBI, HDFC Bank & ICICI Bank to settle secondary-market transactions in G-Sec.
And CBDC-R is nothing but an electronic version of cash, with a primary purpose of retail consumption.
It's not like India already doesn't have a sound payment system with not-so great products like NEFT, RTGS, or UPI.
It does.
It's not like India already doesn't have a sound payment system with not-so great products like NEFT, RTGS, or UPI.
It does.
But the introduction of CBDC-R will provide a safer- central bank instrument with even greater efficiency for payment and settlement.
India has already made impressive progress in terms of innovation in the digital payment industry.
India has already made impressive progress in terms of innovation in the digital payment industry.
But CBDC has the potential to provide more real-time and cost-effective payment solutions.
The digital rupee, supported by state-of-the-art payment systems of India, will boost India's digital economy and enhance financial inclusion.
The digital rupee, supported by state-of-the-art payment systems of India, will boost India's digital economy and enhance financial inclusion.
CBDC would also enable India to overcome the "Cross Border Payments" challenge if RBI factor an international dimension into the CBDC system from the start.
Cross-border payment involves high cost, low speed, and lack of transparency along with other countless frictions.
Cross-border payment involves high cost, low speed, and lack of transparency along with other countless frictions.
But if RBI coordinates CBDC internationally by investigating risks, returns, and various other designs of it
- CBDC would deliver benefits to citizens as well as economies by supporting economic growth, international trade, and global development.
- CBDC would deliver benefits to citizens as well as economies by supporting economic growth, international trade, and global development.
Now coming back to its domestic usage, according to RBI, the year 2021-22 witnessed a higher-than-average increase in banknotes in circulation.
The reason was simple- precautionary holding of cash reserves to fight unforeseeable circumstances like the Covid-19 breakout.
The reason was simple- precautionary holding of cash reserves to fight unforeseeable circumstances like the Covid-19 breakout.
Moreover, cash remained the most preferred mode of payment in most cities.
So as per the experts, CBDC has the potential to be the most preferred mode of payment for daily expenses. This is a huge step for India to become a "Less Cash Economy".
So as per the experts, CBDC has the potential to be the most preferred mode of payment for daily expenses. This is a huge step for India to become a "Less Cash Economy".
After discussing its few advantages, let's discuss one more aspect of CBDC- its design.
CBDC can be structured as 'token' or 'account-based' or maybe 'both'.
1. In a Token-based system- the CBDC is created as a token with a specific denomination.
CBDC can be structured as 'token' or 'account-based' or maybe 'both'.
1. In a Token-based system- the CBDC is created as a token with a specific denomination.
Transfer of token from one party to the other is the immediate transfer or ownership (like handing over a banknote) and does not require reconciling two databases.
2. And in an Account-based system- the Central Bank would hold accounts for all users of the currency.
2. And in an Account-based system- the Central Bank would hold accounts for all users of the currency.
RBI may issue CBDC-W in an 'account-based form' and CBDC-R in a 'token-based form'.
After covering CBDC design in the most simple-to-understand manner, let's talk about its choice of technology platform.
After covering CBDC design in the most simple-to-understand manner, let's talk about its choice of technology platform.
There are 2 options for that-
1. Distributed ledger technology- in which data will be stored multiple times in separate physical locations but usually be managed jointly by multiple entities in a decentralized manner.
But this system is only suitable for very small jurisdiction.
1. Distributed ledger technology- in which data will be stored multiple times in separate physical locations but usually be managed jointly by multiple entities in a decentralized manner.
But this system is only suitable for very small jurisdiction.
2. A centralized system- here also data will be stored multiple times in separate physical locations, but generally be controlled by 1 authoritative central entity.
Now time will tell more about what will be RBI's preference, or do we know that already?π
Now time will tell more about what will be RBI's preference, or do we know that already?π
Now we should cover a few key requirements as well, which is needed to be carefully planned while developing the technological architecture for CBDC.
1. 0 downtime- to keep the economy functioning
2. 0 frauds- to prevent destabilization of the economy
1. 0 downtime- to keep the economy functioning
2. 0 frauds- to prevent destabilization of the economy
3. Decentralization- for effective participation of the ecosystem
And while we're discussing tech., should we also discuss CBDC's offline functionality too?
And while we're discussing tech., should we also discuss CBDC's offline functionality too?
Traditional digital payment services rely on online communications, but in India, only 825 million people out of 1.4 billion people have internet access.
So to ensure the widespread use of CBDC, offline capabilities need to be incorporated in it.
So to ensure the widespread use of CBDC, offline capabilities need to be incorporated in it.
And last but not least- Indian CBDC would be integrated with existing payment systems like UPI, digital wallets like Paytm, G-Pay, etc
- because interoperability between payment systems contributes to achieving adoption, co-existence, innovation, and efficiency for end users.
- because interoperability between payment systems contributes to achieving adoption, co-existence, innovation, and efficiency for end users.
CBDC would only reap benefits to our nation if the general public and businesses adopt it
- hold it and use it to settle transactions just like banknotes and commercial papers.
- hold it and use it to settle transactions just like banknotes and commercial papers.
India is already leading the world in terms of digital payments innovation.
And now with the introduction of CBDC, our nation might've just taken a step further to make India more secure and efficient.
And now with the introduction of CBDC, our nation might've just taken a step further to make India more secure and efficient.
If you liked this read then do ReTweet the 1st tweet and follow us at @FinFloww for moreβ€οΈ
Join 4400 people who are receiving such stories daily on their WhatsApp:
chat.whatsapp.com
chat.whatsapp.com
We have launched a weekly email newsletter, βWhat the Floww?β
Not to share news but to tell you amazing stories.
Stories that will take you places youβve never been before.
Subscribe here:
getrevue.co
Not to share news but to tell you amazing stories.
Stories that will take you places youβve never been before.
Subscribe here:
getrevue.co
Loading suggestions...