Definition of RBI Digital Rupee
What is RBI Digital Rupee? The Reserve Bank of India is set to launch a pilot project for its Central Bank Digital Currency (CBDC), which it categorizes as legal tender in digital form. Commonly known as the RBI digital rupee, it will be convertible on par with existing currencies and will be considered acceptable for payment and a secure store of value.
The CBDC issued by the RBI, which is also called e₹ (eRupee) or RBI digital rupee, is aimed at creating another use for money and is not very different from the currently issued notes; Only digital rupees are expected to be digitized and made easier to use.
The digital rupee is the RBI-adopted version of cryptocurrencies, which the central bank has repeatedly rejected as a serious challenge to the stability of the country’s financial system.
As an electronic form of sovereign currency, CDBC is touted as more secure than private cryptocurrencies, and here’s how the two will differ.
What is Cryptocurrency?
Simply put, cryptocurrency is decentralized money, without any government or central bank chains. It relies on blockchain technology and uses cryptography to secure transactions made by humans, making counterfeiting impossible.
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However, in August 2010, a hacker found a loophole in the Bitcoin protocol. A hacker exploited the vulnerability and created an infinite amount of bitcoins by making several transactions before logging them into the blockchain.
The user generated 184 billion bitcoins in a few hours, but his plot was discovered and the transactions were canceled. To date, this has been the only threat to the Bitcoin network.
The purpose of Bitcoin was to help people send money over the Internet. It is a digital currency, an alternative payment system without any control that works exactly like traditional currencies.
What are the 3 Terms of cryptocurrency?
To better understand cryptocurrency, you need to know three terminologies:
- Blockchain
- Decentralization
- Cryptography
Blockchain in cryptocurrency is the showrunner
It is a digital ledger whose access is distributed among authorized users and records transactions.
Information and access are shared between registered users. So anything the blockchain records is transparent and immutable – the information cannot be manipulated or hacked. Not even from the administrator.
Decentralization in cryptocurrency
Decentralization in cryptocurrency means that the asset is free from governing bodies such as central banks. This mechanism makes cryptocurrencies independent. At the same time, the centralized money we use is monitored and managed by the RBI.
Cryptography in cryptocurrency
Cryptography in cryptocurrency means secret writing, which means that the recipient can only read the messages. It takes care of transactions, protects operational autonomy and strengthens the entire chain.
How does cryptocurrency work?
All cryptocurrencies are generated through a rigorous process called mining. Miners use computers with high-end GPUs to solve various complex mathematical problems and puzzles in order to earn cryptocurrencies as a reward. Cryptocurrency mining takes days and even months.
People can also buy cryptocurrencies from currency owners and exchange platforms and can even sell them to other individuals. Cryptocurrencies are stored in digital wallets that are either hot or cold. Hot wallet is connected to the internet. In contrast, cold storage keeps your assets offline.
Cryptocurrencies can be traded or transferred using a smartphone – just like UPI transactions. Users can also convert their cryptocurrency holdings to cash using their bank accounts or P2P transactions.
Of course, while Bitcoin remains a popular choice for miners and investors, it started the digital currency revolution that led to the birth of many popular currencies such as Ethereum, Tether, XRP, etc.
Cryptocurrencies are immune to any intervention by a central authority or government. However, their relationship with the Indian government was quite uneasy.
- April 2018 – People were warned that virtual currencies are not legal tender in India. The Finance Ministry has appointed a committee to draft a draft law for cryptocurrencies in India. But the ministry lifted the ban.
- In 2019 – The bill banned mining, holding, selling, issuing, transferring and using cryptocurrencies. If found to have broken the law, people would pay a hefty fine or face up to 10 years in prison.
- March 2020 – The Supreme Court of India overturned the ban,
- November 2021 – Finance Minister Nirmala Sitharaman raised the issue of cryptocurrency in the Rajya Sabha. She said the government has not taken concrete steps to ban cryptocurrency advertising in India but will spread awareness through RBI and SEBI.
- Union Budget 2022-23 – Government of India has recognized cryptocurrencies and decided to tax 30% of any virtual asset. FM also announced the launch of a CBDC called Digital Rupee.
Cryptocurrency vs RBI Digital Rupee
According to the RBI, “CBDC is legal tender issued by the central bank in digital form. It is the same as fiat currency and is exchangeable one to one with fiat currency. Only his form is different.”
But CBDC cannot be exactly compared to cryptocurrencies.
Is RBI Digital Rupee a Cryptocurrency? Here’s some context.
“Unlike cryptocurrencies, CBDC is not a commodity or claims on commodities or digital assets. Cryptocurrencies have no issuer. It is not money (certainly not currency) as the word has historically come to be understood,” said the RBI notification.
CBDC is a digital avatar of paper currency issued by central banks like RBI and should be exchangeable for cash. Commonly known digital rupee is a currency issued by RBI and digital rupee will have the same function but it will not be a decentralized asset like cryptocurrencies. The digital rupee will be a currency issued by central banks responsible for managing and managing assets.
The digital rupee will be legal tender, meaning you can use it to buy whatever you want. For example, digital wallets, NEFT and IMPS are examples of digital rupees. So when RBI starts circulating digital rupee, all citizens of India can use it.
List of Countries Who Considering CBDCs
With the recent popularity of the cashless or digital financial framework, the world’s governments and central banks are exploring (some of them have even implemented) digital currency options.
Below is the list of countries who is addopting CBDCs
- Bahamas
- Nigeria
- Dominica
- Montserrat
- Antigua
- Barbuda
- Saint Lucia
- Saint Kitts
- Nevis
- Saint Vincent
- Grenadines
Below is the list of countries which have already launched their digital currency.
- Russia – Digital Ruble Completes Initial Trials – Full Transaction Cycle, Russia’s Central Bank Announces.
- China – plans to launch eCNY or digital yuan by 2022.
Do we need a RBI digital rupee?
The most important reason behind RBI’s launch of digital rupee is to push India forward in the virtual currency race. And of course due to the growing importance of cryptocurrency.
- Thanks to blockchain technology, the digital rupee will increase efficiency and transparency.
- Blockchain will also enable real-time tracking and ledger maintenance.
- The payment system will be available to wholesale and retail customers 24/7.
- Indian buyers can pay without a middleman.
- Lower transaction costs.
- Billing in real time.
- You don’t need to open a bank account to transact in digital rupee.
- Fast cross-border transactions.
- No volatility risk as RBI will support it.
- Compared to banknotes, the digital rupee will be mobile forever.
But with a huge payment system like UPI, can CBDCs up the game?
Cash remains the preferred mode of payment for receiving money for current expenses, according to an RBI survey. Cash is mostly used for small value transactions (amounts up to INR 500).
Does the new 30% tax on cryptocurrencies include RBI Digital Rupee?
All cryptocurrencies like Bitcoin, Ethereum, Litecoin, etc. will not be tax exempt.
Only RBI’s digital rupee will be exempt from tax regulations.
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Bottom Line – RBI Digital Rupee
By introducing a digital rupee, the RBI expects to solve problems associated with existing physical currencies and cross-border transactions.
Cross-border money transfer and money transfer to foreign currency is time-consuming and expensive. With the introduction of the digital rupee, instant cross-border money transfer is set to make cash management and bank operations smoother.
In India, locating and tracking cash is a challenge. CBDC can address anonymity and solve it in a non-intimidating way and reduce the demand for cash. The government will save on operational, printing, distribution and storage costs – furthering the government’s vision towards a cashless economy.
RBI Digital Rupee FAQ
What is RBI Digital Rupee and how does it work?
The retail CBDC, launched by the RBI on Thursday, is a digital token that will act as the digital equivalent of a banknote that can be electronically transferred from one holder to another. It can be stored in a mobile phone wallet and spent as cash. Advertisement.
What is Digital Rupee? Digital rupee or e-rupee is a central bank digital currency issued by RBI. It is similar to the physical cash you keep in your wallet, except that the e-rupee is stored electronically in a digital wallet overseen by the RBI.
Can we invest in RBI digital rupees?
Unlike Bitcoin, e-rupee is not an investment, nor an asset like a crypto-asset. E-rupee requires connection, smart phones, electricity.
How is RBI Digital Rupee different from UPI?
Digital Rupee vs UPI : Unlike digital rupee, UPI is only an interface used to conduct transactions based on physical currency. Digital Rupee, on the other hand, is just another form of fiat-like currency that cannot be withdrawn from their bank account.
What is the advantage of digital rupee?
“The launch of digital rupee in India is expected to bring more efficiency, transparency, system resilience and governance in our currency management system,” said Pranav Arora. “RBI data shows that from 2018 to 2020, Indian banks lost around USD 50 billion. to fraud.
Is RBI Digital Rupee a cryptocurrency?
Digital rupees or e-rupees are in no way linked to cryptocurrency and are not based on Blockchain technology. It is just a digital form of cash/paper money.
How will RBI digital rupee affect banks?
Talking about digital rupee, RBI said it will offer trust, security and finality of settlement. It will not earn any interest like cash and can be converted to other forms of money including bank deposits.
Who will issue digital rupees?
The Reserve Bank of India will issue Digital Rupee. Reserve Bank Announces Launch of First Retail Digital Rupee (e₹-R) Pilot Project on December 1, 2022. It may be recalled that RBI in a press release dated October 31, 2022 said that the pilot project in e₹-R will start in a month.