Blockchain and Distributed ledger technology (DLT) have reached such a stage that their role in modern economies cannot be ignored. Building on these very foundational technologies, the Modi government has decided to launch its own Central Bank Digital Currency (CBDC).
2022 Budget remarks the arrival of CBDC in India
Budget 2022 became one of the most remarkable budgets in Indian history. In her Budget speech, Finance Minister Nirmala Sitharaman made an official announcement for India’s foray into digital money. India is launching its own digital currency.
In her Budget speech, she said, “Digital rupee to be issued using Blockchain and other technologies by the RBI starting 2022-23. This will give a big boost to the economy,”. Mrs Sitharaman also pointed out the benefits of digital currency to the country.
Stating that it will require fewer resources to manage money, she added, “Introduction of digital rupee using blockchain technology will help in reducing financial and physical efforts required for money management,”
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Legal formalities are almost completed
The legal formalities for issuing digital currency are in their final stages. Our current laws do not provide for the recognition of digital currency. So, in October 2021, the Reserve Bank of India (RBI) had received a green signal from the government to change the definition of banknote in the Reserve Bank of India, Act 1934. Now, digitally mined money by RBI will also hold the same value as a paper currency.
Government-owned digital currency
It is simply your rupee in digital form. The money which we currently use comes in the form of paper or coin. Even our digital transactions are based on assumption that we are transferring the same paper or coin which is in our wallet.
RBI’s digital currency will be a bit different. It will be an electronic record of the Indian Rupee. The record will be available with RBI and other regulatory authorities. Simply put, the total money pool circulating in the economy will now consist of paper money, coin, and electronic money.
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Advantageous for the public as well as Government
Apart from easing transactions for an average consumer, it will be easier for the government as well. Currently, printing, and minting money requires too much human as well as monetary capital. Digital Currency is expected to drastically bring down that cost. Moreover, it will also be easier to track and tough to duplicate.
Why need it if cryptos are already there
Cryptos at the end of the day are non-authentic. They do not have any backing from any government. Except for a few places, you cannot use cryptos to buy anything. On the other hand, government-owned cryptocurrency has statutory backing. It is credible, reliable, and usable for everyone.
Recently, many countries have raised concerned about the rising craze for unauthenticated digital currencies. To counter this, various suggestions were made. CBDC by the Indian government is one such measure towards curing the problems raised by unregulated cryptos.