Finance Minister Nirmala Sitharaman on Tuesday, 1 February, announced the launch of Digital Rupee – India's version of a Central Bank Digital Currency (CBCD).
But what exactly is a digital rupee? What do we know, and not know about this new form of holding money?
Here's all you need to know.
What is a Digital Rupee?
To put it simply, Digital Rupee is a paperless form of currency. It is just another way, a digital way, of holding money.
Is it like cryptocurrency?
No. The CBDC is the same as the legal currency we use. This also means that it will also have the same value as paper money.
"The Digital Rupee, powered by blockchain technology, will be regarded as bank notes. Sections 2 and 22 of the RBI act have been proposed to be amended to that effect," explained Sharat Chandra, Vice President, Research & Strategy, EarthID.
When will it be launched?
The Reserve Bank of India will be launching the CBDC from the upcoming financial year 2022-2023. However, the date of launch has not been announced yet.
"A retail CBDC might take longer than the wholesale one to come to fruition given the digitisation challenges and complexities involved in the retail payment landscape. Offline payment initiatives such as UPI wallet for basic phones can bridge the digital divide. There is a stronger case for wholesale CBDC for interbank settlements and cross border payments," Chandra said.
How can I get Digital Rupee?
We do not know yet. The RBI is expected to release a detailed set of guidelines. Watch out this space for more.
Can I exchange Digital Rupee for paper currency?
Yes, you will be able to. The RBI guidelines will provide more details about the same.
Will the new 30 percent tax on digital assets apply to Digital Rupee as well?
No, this will not be applicable to Digital Rupee. Virtual digital assets include cryptocurrencies, NFTs etc, and not historical concept of money.
What is the need for Digital Rupee?
The RBI had earlier flagged "serious concerns" over money laundering, terror financing, tax evasion, etc, with private cryptocurrencies and had indicated that it will announce its own CBDC.
"The introduction of central bank digital currency will give a big boost to the digital economy. Digital currency will also be a more cheaper and efficient currency management system," Sitharaman said in her address.
Which other countries have CBDCs?
On 20 January, the US Federal Reserve Board (FRB) released a discussion paper, inviting comment from the public on pros and cons of CBDC. Listing out the key features of the CBDC, it said that the form of currency will protect consumer privacy, safeguard against criminal activities, and complement rather than replace other forms of money.
Studies are underway in both China and Japan as well to understand how CBDCs can be effective.
An RBI report had earlier explained CBDC as something that will provide a safe, robust, and convenient alternative to physical cash, reported MoneyControl.
"Depending on various design choices, it can also assume the complex form of a financial instrument," the RBI report said, the website quoted.
Eastern Caribbean nations including Grenada, Saint Lucia, Antigua are also looking at using CBDCs.