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The digital rupee, a virtual form of Indian currency, has been piloted on November 1, 2022.
The decision was taken by the central bank of India considering the latest developments in blockchain technology, which will help the government save a lot of costs incurred in printing physical currency with metal coins and paper.
What is a digital rupee?
The digital rupee being launched is a Central Bank Digital Currency (CBDC); this means that the entire ecosystem will be centralized and the central bank will closely monitor the documentation, currency transactions and distribution of the currency.
The concept of a digital version of the Indian rupee was floated back in January 2017. The RBI started assessing the pros and cons of a digital rupee and it took them about five years to come to a conclusion in this fiscal year 2022-23.
What are the two types of models?
Two models will be presented: the direct model and the indirect model. These two models can also be divided into single-layer model and two-layer model. There should be another model: the hybrid model is also being discussed for implementation, but as a pilot, the central bank is only focusing on introducing these two models.
The difference between the two models is that the central bank will play an active role in the single-tier model. Digital currency is the responsibility of the central government.
CBDC and its classification
CBDCs fall into two categories: CDBC-R and CBDC-W, where R stands for retail and W stands for wholesale. The retail class is used for general public transactions and trade, and the wholesale class is used for inter-financial institution transactions and monetary applications.
Impact of digital rupee on business
The first impact it will have is to save us operational costs when printing physical currency. India will save about INR 40 billion in printing costs, which is a huge hurdle.
One of the biggest advantages is that the digital currency you have is equivalent to physical currency such as cash or coins, so you can exchange them. However, in addition to offering multiple benefits, it also faces a challenge as it requires an internet connection and requires digital devices such as smartphones, laptops and tablets to trade digital currencies.
Digital currency has the same characteristics, characteristics and authenticity as physical currency, which means that people can buy, trade and conduct various currency transactions with the help of digital currency.
Two beneficial features of blockchain are that it is a highly secure and sustainable financial system that can now digitize paperwork, records and other documents related to the country’s financial sector without being compromised. Moving the entire financial ecosystem on a digital platform offers scalable benefits, and the UPI payment transaction app is a great example of such a benefit. Henceforth, it will facilitate transactions, eliminate cybercriminal activity that destroys our economic growth, and be the big red book of money records for business organizations focused on profit rather than socioeconomic purposes.
How will it help boost the Indian economy?
Digital currencies will make transaction costs cheaper and faster, and global currency transactions easier. If the transition is well maintained and regulated, with all necessary compliance and regulations complied with.
The use of digital wallets, smart ledgers, and smart contracts to execute monetary applications will reduce the substantial operational costs required.
Migrants will be able to transfer money without paying the raw transaction fees they used to be charged every time they transfer money.
The digital currency will run on blockchain technology, which will securely monitor transactions, eliminating the possibility of fraud. Tracking vulnerabilities and identifying cyber threats has become easier for authorities using these innovative technologies to conduct business.