Digital Rupee using blockchain technology will be issued by the Reserve Bank of India (RBI) starting 2022-23, Finance Minister Nirmala Sitharaman said in her Budget 2022-23 speech in Parliament.
“Introduction of Central Bank Digital Currency (CBDC) will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system.” – Nirmala Sitharaman
While the CBDC has been in the works for a while now, this is the first official announcement specifying a timeline for its launch. The CBDC is the government’s attempt to take advantage of the benefits offered by blockchain technology and to also discourage the use of private crypto like Bitcoin as currency.
According to the Atlantic Council, over 90 countries including the US, China, Russia, and many in the EU are exploring CBDCs. So far, only nine of these countries have launched a digital currency.
What are the benefits of CBDCs?
In response to a parliamentary question, the government last December highlighted the following benefits of CBDCs:
- Reduced dependency on cash
- Higher seigniorage due to lower transaction costs (seigniorage is the profit made by a government when issuing currency, calculated as the difference between the face value of coins and production costs)
- Reduced settlement risk
- More robust, efficient, trusted, regulated, and legal tender-based payments option
- Will not have volatility which is normally associated with private cryptocurrencies
“The proposed launch of a Rupee Digital Currency is likely to act as a catalyst in the development of a future value transfer platform that will help to create a more resilient, innovative, and competitive payment system for households, businesses, and the economy as a whole. The impending digital rupee will undoubtedly lower the government’s massive capital expenditure on currency printing,” Nakul Batra, Associate Partner, DSK Legal, told MediaNama
Despite these benefits, there are associated risks that need to be carefully evaluated against the potential benefits, the Finance Ministry added in its response. “Although blockchain is a trustworthy data source, however, if hacked, serious and enormous economic consequences may follow, which is not a use case with physical currency,” Batra said
Reaction from Indian crypto companies
Welcoming the move, Nischal Shetty, Founder and CEO of WazirX, tweeted:
Blockchain powered Digital Rupee by @RBI will be introduced 2022-23 in India
Great news! More crypto adoption on the way ?
Glad to know that RBI will now start getting deeper into crypto. Hope to see banks start getting involved with crypto industry as well#IndiaWantsCrypto
— Nischal (WazirX) ⚡️ (@NischalShetty) February 1, 2022
Sumit Gupta, Co-founder and CEO at CoinDCX, said:
The introduction of CBDC sends a clear signal of India being a digital-first, efficiency-driven, and transparency-led system.
CBDC with the backbone of Blockchain will help us hold a powerful position in the global economy.
We welcome this visionary move.#Budget2022
— Sumit Gupta (CoinDCX) (@smtgpt) February 1, 2022
Also Read:
- RBI Says It Needs To Assess Cybersecurity Risks Before Rolling Out CBDCs
- Why Does India Need Digital Rupee? RBI Deputy Governor Says To Avoid Cryptocurrency’s Damaging Consequences
- Lessons For The RBI On Central Bank Digital Currencies From Abroad
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