Is digital rupee a game-changer? Only time will tell

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If you thought the digital rupee would change Indian banking overnight, think again.

The Reserve Bank of India launched an e-rupee pilot this month with the aim of eventually increasing the efficiency of settlement systems, the security of digital payments and the functionality of the currency. As it is designed to serve limited purposes, at present, there is no scope for retailer participation in it.

The pilot notification, which involves nine banks including SBI, HDFC and ICICI, has been termed as one of the most sought-after developments since it was unveiled during the Union Budget in February.

“Though it is currently only in its pilot phase, one thing is still clear – that the technical capability has been established, as the first agreement was made between BoB and SBI under the project,” Bank of Baroda’s Managing Director and Chief Executive Officer, Sanjiv Chadha. said f.

So far, transactions are being done between banks and only for government securities, with the Clearing Corporation of India acting as an intermediary.

As of July 2022, 105 countries were exploring a Central Bank Digital Currency (CBDC), the RBI said in a report last month.

The Bahamas was the first of 10 countries to launch its own CBDC. The main motive behind the launch of the Bahamian Sand Dollar in October 2020 was to better cater to its unbanked and underbanked citizens.

Another 17 countries, including China and South Korea, are in the pilot phase and preparing for possible launches. China, which was the first major economy to pilot a CBDC in April 2020, aims for widespread domestic use of the digital yuan by 2023.

Launching a CBDC has helped these countries lower transaction costs and drastically reduce turnaround times. RBI wants to extend the facility to cover schemes such as Kisan Credit Card, Mudra Yojana and Direct Benefit Transfer in future. However, this will require enhanced financial literacy in India.

India has been among the leaders in digital payments and government support has furthered digitization. Digital signage will facilitate business transactions. At the same time, money transfers will become faster. An RBI-backed digital rupee reduces volatility risks and increases transparency.

“I don’t know if it will be able to replace existing forms of payment infrastructure. We are waiting to see how the retail model evolves,” said Saurabh Puri, business head of the credit card arm at Hyderabad-based fintech firm Zaggle.

When it comes to retail customers, RBI is not designed to handle such large transactions. Despite the fact that some types of retail transactions such as the unbanked will benefit from it.

Experts have also spoken about problems related to centralized enforcement and privacy issues. Some others are more optimistic.

“The digital rupee has simplified the banking ecosystem. For starters, it’s a verifiable money transfer,” said Ankit Wadhwa, co-founder and CEO of cricket-related immutable token platform Rario, which has sold 1.5 lakh NFTs so far.

International money transfer has been a pain for the country’s exporters as it takes 24 to 72 hours to complete the entire transaction. Global money transfer has to go through several stages, including sending bank, correspondent bank, receiving bank, Nostro & Vostro accounts, Forex team and so on, and often, they don’t know where their money is stuck .

The digital rupee will make such transactions possible instantly.

Unlike cryptocurrencies that are available in a decentralized format, the digital rupee will be regulated by India’s central bank RBI, making it fully legal and acceptable to the Indian government.

“The CBDC will be a further positive step towards the adoption of blockchain for financial services and align India with the world that is rapidly advancing towards the adoption of digital currencies,” said Sanjeev Chandak, co-founder and CEO of financial services firm Ftcash. .

The rapid adoption of UPI and QR code-based payments across the country and across different sizes and types of businesses has proven that India is an early adopter of the technology, Chandak added. However, it is too early to say whether CBDC will be able to replace UPI.

(The author is a senior journalist based in Mumbai)

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