Centralised Digital Currency in India

While India is known as one of the leading countries in terms of digital payments innovations, the payments space has still not been monopolised by any corporate, social, or technological entity. The country facilitates payments that can be processed instantly almost anytime with minimal fees. This is probably why many multinational companies operating in India are now accepting digital currency payments.

Central Bank Digital Currencies (CBDCs) are legal tender created by the central bank of a nation, though in digital form. The only difference between them and traditional cash or fiat currency is that CBDCs are digital. Unlike other cryptocurrencies that are DeFi or decentralised financial tokens, CBDCs will be backed by central reserves just like all other fiat currencies. The digital rupee is essentially going to be the digital representation of a rupee backed by the Reserve Bank of India (RBI). 

India is not the only country that is experimenting with a digital legal tender. The digital dollar, e-yuan, and digital euro are some of the projects that various central banks are experimenting with across the world. Moreover, unlike Bitcoin, which is a cryptocurrency built on the underlying blockchain technology allowing users to remain anonymous, the official digital currency will have the backing of the RBI. It means that the digital rupee is as good as a physical rupee for all transactions. A digital rupee will have the same value as the physical rupee.

The primary reasons behind the adoption of CBDC are:

• Central banks, faced with dwindling usage of paper currency, seek to popularise a more acceptable electronic form of currency
• Jurisdictions with significant physical cash usage seeking to make issuance more efficient
• Central banks seek to meet the public’s need for digital currencies, manifested in the increasing use of private virtual currencies, and thereby avoid the more damaging consequences of such private currencies

Reducing the economy's reliance on cash will open ways for cheaper, faster, and more convenient international payments and transactions, while promoting more real-time and cost-effective globalisation of payment systems.

Apart from building a cashless economy, the digital currency is also considered to be an instrument in promoting financial inclusivity and modernizing the current banking sector of India, while also protecting the people from the volatility of private cryptocurrencies.

What remains to be witnessed with the dynamics of Indian demographics and diaspora, will the launch of CBDC help in further empowering the digital economy of India.