DMPQ-. Write an essay on RBI’s plan to launch an digital currency.

In the Budget presented for 2022-23, Finance Minister had announced the introduction of India’s Central Bank Digital Currency (CBDC) and that the digital rupee would give a ‘big boost’ to digital economy. Finance Minister had indicated that technologies such as blockchain would be used by the Reserve Bank of India to issue the currency, starting 2022-23. The Reserve Bank had, in July 2021, indicated that it would soon begin work on the ‘phased implementation’ of the CBDC.

CBDC is no different from the cash that we hold in our wallets, except that it exists in a digital form. The CBDC will be held in a digital wallet that is supervised by the Central bank. In India, it will be the RBI that supervises the digital rupee although it may delegate some power to banks. However, it does seem probable that the RBI will take steps to encourage the use of its digital currency over physical cash.

Central banks claim that there is an increasing demand for digital currencies, which they wish to satisfy. They point to the rise of private digital currencies such as bitcoin and also to the increasing use of digital payments as examples of this secular trend. Central bank digital currencies are promised as reliable, sovereign-backed alternatives to private currencies which are volatile and unregulated.

Central banks also believe that the cost of issuing digital currencies is far lower than the cost of printing and distributing physical cash. The RBI can create and distribute the digital rupee at virtually zero cost since the creation and the distribution of the digital rupee will happen electronically.

. Another likely reason for the introduction of digital cash may be to bring down the use of physical cash. Unlike physical cash, which is hard to trace, a digital currency that is monitored by the RBI can be more easily tracked and controlled by the Central bank. This feature of digital currencies, however, has raised various concerns regarding their privacy and could slow down their adoption.

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