Digital Currency Explained : Central Bank Digital Currency ( CBDC )

The RBI will soon issued A Central Bank Digital Currency (CBDC) in the coming fiscal year. The digital currency will use blockchain and other technologies. Digital currency will be different from Bitcoin and other cryptocurrencies. This will be the India’s Digital economy soon that will be boost by RBI.

Digital Currency

Finance Minister(FM) Smt. Nirmala Sitharaman, presented the union budget 2022-2023, the concept of the Digital Rupee is meant to take some inspiration from cryptocurrencies like Bitcoin, but with the regulations of the central bank. As I earlier told you about the Digital Rupee or CBDC will work “using blockchain and other technologies,” the Finance Minister said during the budget presentation.


Digital Rupee or CBDC

The Reserve Bank of India (RBI) explains the Central Bank Digital Currency (CBDC) as a legal tender issued by a central bank in a digital form. In laymen terms, it is a digital form of the fiat currency, i.e. our Indian Rupee. It is thus, exchangeable one-to-one with the fiat currency.

Advantages of Digital Rupee:

  • A digital currency can never be torn, burnt or physically damaged.
  • They cannot be physically lost either.
  • The lifeline of a digital form of currency will thus be indefinite as compared to notes.
  • Government will save on the cost of printing currencies.
  • The transactions will be instantaneous and will be accessible in more remote areas also.

Note : Bad news for Dear Indians, value of cryptocurrencies you hold will be taxed 30% .

digital currency
digital currency

Digital Rupee is different from Bitcoin

This new budget 2022 highlights the digital currency on the same, confirming the use of blockchain and other technologies for its use in the country.

I wanna tell you that Blockchain technology, by nature, is decentralised, it means that all its information is stored across a network of computers. This brings increased resilience to the data against errors as well as cyber threats. For cryptocurrencies like Bitcoin, this network is spread globally across the systems of its developers.

Digital Rupee will have a slightly different version of this. Since the currency will be regulated by the RBI, it will not be truly decentralised in nature. It means that there is, in fact, one entity controlling its issuance and distribution, just the opposite of what decentralised would mean in a true sense.

The “decentralised” adjective, thus, only stands true for blockchain technology and its network of computers in the case of the Digital Rupee. RBI will have to set up this network going forward, but the blockchain network will be limited to the bank and the associated entities. As a report by PWC highlights, CBDC may need “an underlying system for issuance and distribution to the public” and for this, the RBI may have to include public and private banks, payment service providers (PSPs) and operators on the network.

A wider ecosystem would then entail the involvement of other financial institutions and third-party service providers. So, even though the Digital Rupee will follow the issuance models of the physical currency, a setup needs to be in place for it.


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