Perhaps with the name of digital currency the first name is coming to our mind is “Bit coin” a crypto currency. Prior to 2008, nobody has heard the name of crypto currency. It is generally accepted that Satoshi Nakamoto is a pseudonym used by the individual or individuals who conceived of the original protocol for Bit Coin in 2008 and launched the network the following year. People were enticed to purchase Bitcoin by the precipitous rise in the cryptocurrency’s value.

In August 2021 value of one bitcoin was around $46000 which reached near to $68500, the highest level of its price. Due to a very high return in a short period, it attracted Indian Nationals to invest through various exchanges such as Wazir X, ZebPay, Binance, etc. Though these exchanges were following KYC norms by doing transactions on the basis of their clients through valid PAN cards. But such transactions could not be regulated as there was no transparency in these transactions.

In view of the high volatility in the value of bit coin and crypto currencies and high risk involved therein, the Govt. of India in Budget 2022 announced a flat 30% tax on gains from crypto currency transactions as well as a tax deducted at source(TDS) of 1%. Though RBI has a stand to ban all crypto currencies in India still no ban has been imposed on these currencies.

The concept of CBDCs is distinct from that of decentralized virtual currencies and crypto assets, neither of which are issued by the government. This is despite the fact that CBDCs were heavily influenced by bit coins. and do not have the status of legal tender. With the rising demand for crypto currencies, there is a rise in Govt. concerns regarding the risks associated with the same as well as its tendency to facilitate money laundering and other forms of criminal financing have given rise to the concept of CBDC, which has gained momentum as a result.

Definition of CBDC

The Reserve Bank of India refers to CBDC, which stands for “Digital Rupee e Rupee,” as a broad definition of the legal tender issued by a central bank in the form of digital currency. It is similar to sovereign paper currency but takes on a different form. It is exchangeable at the same rate as the currency that is currently in circulation, and it will be recognized as a medium of payment, legal tender, and a secure place to store value.

As a tokenized digital version of the Indian Rupee, the Digital Rupee, also known as eINR or E-Rupee, is being issued by the RBI as a central bank digital currency. Other names for the Digital Rupee include eINR and E-Rupee. The Reserve Bank derives the necessary statutory powers to manage currency from Section 22 of the RBI Act of 1934. This is due to the fact that currency management is one of the Reserve Bank’s core central banking functions.

The RBI, in conjunction with the Government of India, is responsible for the creation, production, and overall management of the nation’s currency. This is done with the intention of ensuring that the economy has access to an adequate supply of genuine and clean banknotes. In order for the RBI to be able to launch a CBDC, it had proposed some amendments to the Reserve Bank of India Act, which was passed in 1934. A proposal for the digital rupee was made in January of 2017, with the intention of launching it between 2022 and 2023. Blockchain, also known as distributed ledger technology, is being utilized by the company known as Digital Rupee.

With the pilot launch of CBDC on 1st November 2022, India has a significant step towards digitalizing its financial system and issuing of digital rupee as a legal tender. Participating financial institutions in the pilot project include SBI, Bank of Baroda, Union Bank of India, HDFC bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First bank, and HDFC. Every participating bank will conduct the e-Rupee pilot program with 10,000 to 50,000 users. NPCI, or the National Payment Corporation of India, will be in charge of managing the back-end infrastructure.

Types of CBDC to be issued

Model for Issuance and Management

Forms of CBDC

CBDC can be structured as ’token-based’ or account based. A token-based CBDC is a bearer- an instrument like Bank Notes means whosoever holds the token at a given time would be presumed to own them. In contrast, an account-based system would necessitate the maintenance of records of balances and transactions for all CBDC holders and would require monetary balances to be marked as belonging to their respective owners.

Reasons for the launch of digital currency

• Recently, crypto currency offers a secure and real-time money transfer option. But it is unregulated and most countries do not encourage crypto currency, while CBDC will provide similar benefits in a legal and secure manner.
• Digital payment platforms are mostly private entities. With CBDC the government can strengthen its presence in digital payments through RBI.
• In physical currency huge costs of printing and transportation are involved. Digital currency will almost reduce these costs to negligible.
• It will give a new horizon to the money transfer system as it will work 24×7 and minimize transaction-related expenses.
• This will move the country towards cashless economy.
• With the digitalization of Rupee it will provide a remedy for fast, transparent, of all economical transactions under Govt. sponsored schemes at a minimal cost.
• Programmable- A CBDC could provide a direct channel for central bankers to take actions like modifying interest rates.
• Will work as an effective tool against money laundering.
• Will contain entire counterfeiting of currency notes as the CBDC will be issued in digital form.

Difference between Crypto and Digital Rupee

Conclusion

Concludingly, we can say Digital Rupee will be the future currency of India to some extent because our country is a poor country and largely dependent on cash transactions. The growing digital transactions as detailed below prove that as and when CBDC digital e-Rupee will be fully operational, it will bring a revolution in our country.

Though we have moved one step forward towards digital currency but to reach at the fully operational level, the target is far ahead.