10 reasons why the digital rupee is the future of money

The Reserve Bank of India (RBI) has announced that the Digital Rupee – the first pilot in the retail segment is planned to be launched at select locations within a month. The central bank said that nine banks – State Bank of India (SBI), Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC have been identified. Participation in pilot project.

Livemint talks to experts on why the digital rupee is the future of money

1) Centralized

Central Bank Digital Currency (CBDC) – a new digital form issued by central banks – could be the new infrastructure we need to bring in greater trust, flexibility and efficiency.

Manoj Dalmiya, founder and director of Prosetz Exchange, said that the money will be in virtual form just like other cryptocurrencies, but the digital rupee will not be decentralized but will be regulated by the Reserve Bank of India (RBI). Digital Rupee will be fully legal and acceptable by the Government of India.

2) Ease of use

Managing Director and Lead Pranav Arora said that each unit of a CBDC can be uniquely identifiable and traceable. Secondly, it can be made programmable i.e., has the ability to add multiple dimensions like stipulated end use, time frame and transferability. Finally, the CBDC is recorded in a blockchain-powered distributed ledger that allows all participants/banks to record transactions and balances.

Taken together, these three distinct features – identity, programmability, and distributed ledgers – could uncover a new set of economic possibilities, Pranav Arora said.

3) Global acceptance

With the internationalization of current and financial account transactions, there will no longer be any geographical boundaries. “A digital rupee that can be held by non-residents and available to conduct cross-border financial transactions seems a natural extension to enable new retail payment possibilities and business ventures,” Dalmiya said.

4) Transparency

Pranav Arora said, “The launch of Digital Rupee in India is expected to usher in greater efficiency, transparency, systemic flexibility and governance in our currency management system.”

“RBI data shows that from 2018 to 2020, Indian banks lost around USD 50 billion from frauds. According to a report by CVC, one of the main reasons for one of the top 100 cases of fraud is improper use of lent money. While the current system relies on post-facto checks like CA audit reports and stock statements etc., a digital currency can proactively address these problems with established programmability and regulated traceability,” Dalmiya said.

5) UPI does not require any such bank account

Anoop Nair said that the biggest advantage of this move is that one does not even need to open a bank account to do the transaction.

6) Payment will be real-time through digital currency or Rupee

Pranav Arora said that at the macro-economic level, the digital rupee can provide real-time visibility and insight into the state of the economy and thus, enable more accurate execution of monetary policy.

7) Possibility to save the operational cost of printing, distribution and storage of banknotes

According to Anup Nayyar, digital currency will reduce the cost involved in printing, distribution and logistics management of cash.

“Not only will the rollout reduce dependence on cash, it will forever remain mobile unlike currency notes,” Nair said.

“India has a 17% cash propensity, the ratio of cash withdrawals to GDP, higher than Nordic countries like the UK and Australia. Digital payments and moving to digital currency can reduce dependence on cash,” said Manoj Dalmiya .

8) Governments can get access to all the transactions taking place within the authorized network

Anup Nair is of the opinion that the adoption of Digital Rupee is likely to play a significant role in enabling easier monitoring of Direct Benefit Transfers (DBTs), making them relatively faster and also reducing malpractices in the payment system. Increasing the efficiency of digital transactions will certainly add another dimension to digital governance.

9) Cannot be physically damaged or lost

Archit Gupta, Founder and CEO, Clear, said that the advantage of digital currencies is that they are not torn, burnt or physically damaged. Nor can they be physically lost. “The lifeline of a digital currency will be uncertain compared to physical notes,” he said.

10) Fraud
digital rupee Can help prevent fraud. Pranav Arora said that while the current system relies on post-facto checks to prevent fraud, CBDCs can actively address this with embedded programmability and regulated traceability.

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