Compared to more conventional forms of money like cash notes or coins, electronic money stored in bank accounts, mobile banking applications, and credit cards is quickly replacing the public's perception of finance.
The popularity of UPI demonstrates the preference for digital money systems. India has been pushing hard to become cashless, starting with the decision to implement demonetization in 2016. That same year also saw the launch of the real-time payments system known as the Unified Payments Interface (UPI). The paradox in the existing system is that although digital transactions are becoming more common, cash is still very popular in India.
In terms of transaction value, UPI executed 7.3 billion transactions in October, totaling Rs. 12.11 lakh crore, a record high. While volumes increased 73.3 percent during the same period, transaction values increased by 56.6 percent year over year.
Cryptocurrencies vs. Digital Rupee
A CBDC, as defined by the RBI, is "a legal tender issued by a central bank in digital form. It can be exchanged one-to-one for fiat money and is equivalent to it. All that has changed is its form. "
However, it is impossible to directly compare a CBDC to a cryptocurrency.
"A CBDC is not a commodity or a claim on a commodity or a digital asset, unlike cryptocurrencies. They are not money definitely not a currency in the sense that the term has historically been used, "according to the RBI's release.
According to the tracker maintained by the Atlantic Council, 98 nations are currently investigating CBDCs. Of these, 11 nations have started CBDCs. In light of this situation, the RBI is acting in a calibrated way to start CBDCs. It is currently looking into the possibility of implementing wholesale CBDCs based on accounts and retail CBDCs based on tokens.
"When something new enters the market, the old need to adapt, and the new need to control the change", says Nikhil Kamath, co-founder of Zerodha. "While many have been critical of #CBDC, we might be overlooking the big picture, remittances, unbanked economy, and minimizing subsidy leakage."
The increasing use of cryptocurrency stablecoins, which tie their value to another currency or asset, has also alarmed a number of central banks. According to a Press Trust of India report, RBI officials informed a parliamentary finance committee in 2022 that the 'dollarization' of a portion of the economy by cryptocurrencies could be detrimental to the nation's interests.
Money transfers via cell phones would be quick and easy, according to Sathvik Vishwanath, co-founder, and CEO of Unocoin, a rival cryptocurrency exchange. The digital rupee will most importantly aid in the eradication of problems with counterfeit money.
According to FIS's Cheema, adoption of the CBDC in the wholesale sector (CBDC-W) has large benefits and substantially fewer dangers than in the more complicated domain of retail CBDC (CBDC-R). In the future, CBDC-R will supplement existing payment structures, not replace them.
The digital rupee will therefore be available for use by all Indian citizens whenever the RBI begins to print it.
