Digital Rupee is all set to be launched by the RBI and is easily exchangeable with the current currencies. It will be accepted for payments across the country and have safe value storage. Digital Rupee is one of the accepted forms of cryptocurrencies by the RBI and is treated as the safest platform for people to handle.
As per the government norms, digital currency will help India build a robust digital economy while avoiding money laundering. However, it will now be used to settle government securities.
Let us now see how digital currency differs from cryptocurrency.
So, what is cryptocurrency?
Cryptocurrency is a decentralised money pattern that does not adhere to any government or bank chains. Cryptocurrency is wholly connected to blockchain technology and makes use of cryptography to secure transactions made by people.
Blockchain in cryptocurrency is the main element. The digital ledger has access equally distributed among the recorded transactions and authorised customers. Here, the data, as well as actions, are shared between various registered users. In short, blockchain is very transparent, and the data cannot be hacked. The administrator needs help getting access to the data.
Another term in cryptocurrency is decentralisation. It means that every asset is set free from the central bank and governing bodies. These strategies make cryptocurrency a completely independent asset.
The third term which holds more importance in cryptocurrency is cryptography. It means that only the recipient can read the messages. The concept takes care of all transactions and secures operational autonomy while encouraging the complete process chain.
Cryptocurrencies are widely created through a strict process called data mining. Here, the miners would utilise computers with highly-tech GPUs to resolve varied, complicated maths problems to receive cryptocurrencies as a prize. However, it might also take several days and months to mine crypto accurately.
You can buy cryptocurrency from its owner and exchange platforms while selling them to others. In terms of storage, the cryptocurrency can be stored in hot or cold digital wallets. A cold digital wallet helps you keep your holdings offline; however, a hot digital wallet is linked to an internet connection.
What is Digital Currency?
As mentioned earlier, digital currency is an electronic form utilised in contactless transactions. CBDC (Central Bank Digital Repository) is a type of rupee form permitted by the central bank. It is the same as that of the fiat currency.
Benefits of digital currency-
- One of the most primary benefits of digital currency is that it reduces transactional costs. With digitised cash, it will make it easier for the government to fetch every transaction that happens within the authorised contacts.
- It will help the government to keep a precise track of all monetary actions happening, like how and where the money has been spent. This ensures the tight security of the funds.
- A digital currency can never be torn, burnt, wet, or damaged physically. Also, it can never be lost physically. When compared to notes, it is the most durable.
- The most significant advantage of the digital rupee is that it will reduce the overall dependency on the dollar.
- Digital currency will make it easy for depositors to take their left balances in the account if the particular bank is confronting some stress and cannot execute transitions.
The Main Objective behind Launching Digital Rupee
As per the RBI directives, the main motto of launching the digital rupee is to make India advance in virtual currencies. The experts in the field believe that introducing a digital rupee will enhance efficiency and transparency since blockchain technology is involved in it. Due to the presence of technology, It will be simple for the government to monitor the ledger in real time.
In terms of its operationality, the digital rupee can offer constant access to wholesale and retail customers. With it, customers can directly pay and save transactional costs while enhancing real-time settlements of accounts. Also, customers won’t need to open bank accounts and can transact cross-border easily.
Launching the digital rupee aims to complement the present forms of money and offer an additional payment method to customers.
Digital Rupee Vs Cryptocurrency
First, of first, the difference between the digital rupee and cryptocurrency is centralisation. It means CBDC, i.e. digital rupee, is entirely controlled by the RBI; on the contrary, cryptocurrency is decentralised, indicating that it is not connected to any government authority.
You can easily keep the digital rupee in bank accounts, but the presence of cryptocurrencies is stored in digital wallets only.
In terms of safety, a digital rupee is relatively safe compared to crypto since the government is involved in it. At the same time, cryptocurrencies are widely used for money laundering, terror financing, and tax invasion.
Types of Digital Rupee
The CBDC (Central Bank Digital Currency) is classified into two different types, including CBDC-R (retail) & CBDC-W (wholesale).
CBDC-R will include all private areas, businesses, and non-finance consumers. In contrast, CBDC-W is designed for restricted access to chosen financial institutions.
The retail Digital rupee is an e-version of cash designed explicitly for retail transactions and can offer easy access to safe money since it is linked to the government. The wholesale digital rupee is launched for interbank transfer settlements, which is equally secure and effective as that of the retail digital rupee.
Down the line
Though RBI has launched the digital rupee concept, it still expects to resolve issues raised due to the present physical currencies and global transactions.
We all know that transferring money across borders is expensive and tedious. However, with the help of the digital rupee, money across various borders can be made instantly while making cash management operations seamless. India is undoubtedly facing cash tracking and placement issues now and then, which is a challenge to solve.
A digital rupee has the power to minimise the cash requirement. This way, the Indian government is set to save a lot of costs, including printing, distributing, and storing expenses. This strategy will surely make a decisive move towards building the nation’s cashless economy.