What’s this CBDC, anyway?
The digital rupee is a CBDC or central bank digital currency going to be issued and managed by the Reserve Bank of India in the near future. In simple words, it’s a digital fiat currency that would function the same way as the paper currency but will be issued and circulated through a digital distributed ledger.
Underlying technology
Central banks across the world have considered a variety of underlying architectures, but they have largely settled for blockchain technology – the underlying technology behind Bitcoin . A blockchain consists of virtual blocks that record all information related to transactions that happened in the network in an encrypted format, and the stored data on the blockchain is replicated and shared with all verified participants of the network at the same time.
As the Indian government has already embraced the blockchain technology in some other areas, it is very much possible that RBI, too, will use the blockchain technology as an underlying architecture for the proposed Digital Rupee.
From where will it derive value
The Digital Rupee will operate as a virtual representation of an Indian rupee. Therefore, each digital rupee unit is supposed to be a secure digital instrument, exactly the same as the paper-based Indian rupee in terms of value, utility and acceptance. The Digital Rupee can act as a medium of exchange, store of value and an official unit of account. The value of the Digital Rupee will be the same as the value of the fiat currency.
Benefits
Aside from helping RBI take a huge step closer to complete financial inclusion, the Digital Rupee will bring about a cashless society, and decrease the cost of printing and handling fiat money by a large margin. The introduction of a Digital Rupee would empower the citizens and the government alike, by expanding the digital economy and doing away with the inefficiencies of the current banking system.
Global trends
Some 81 countries representing over 90 per cent of Global GDP are exploring CBDCs. Among them, 14 have tested pilots, 16 are in the development phase, and 32 have in the research phase.
As many as 14 major economies, including China and South Korea, have tested pilots. China is currently leading the race in CBDC. It recently released a report that said some $5.5 billion worth transactions were carried out during the digital yuan pilot run. China has a plan to introduce the digital yuan in the Winter Olympics next year.
India is lagging behind on the development of its CBDC. T is still researching on it, and RBI is still weighing the possibilities of the pilot run to be carried out soon.
Conclusion
The digital currency movement will slowly but surely attract more countries to adopt CBDCs. The main challenges would always be user adoption and security. If governments adopt the right technology and find a way to regulate the flow of digital payments, rapid development is guaranteed in the coming years.
(Hitesh Malviya is the founder of itsblockchain.com, India’s first & older blockchain cryptocurrency publication. As a crypto guru/investment expert/early adopter, he has over 5 years of experience in the cryptocurrency and blockchain industry.)
