Concept of Central Bank Digital Currency (CBDC) e-rupee –

RBI released a concept note on the digital rupee (e-rupee) on 7th October 2022. The Government of India had also announced the launch of a CBDC in its 2022 Union Budget. E-rupee is a digital version of the Indian rupee. The RBI has announced its issue in two versions. One is wholesale for interbank settlement and other is the retail for the public. The digital rupee can be kept in a Digital wallet. It is considered not different from banknotes, but being digital it is likely to be easier, faster, and cheaper.

Working of e rupee –

Token based system is introduced for the transfer of e rupees. The one who is transferring the digital currency should have the recipient’s public key (a sort of digital address). The transfer can only be done using a private key (a unique password) along with the public one. Unique tokens based on agreed techniques would be created, which will be slightly resource-intensive. Transactions with higher amounts may have to be disclosed mandatorily, while those of smaller ones can remain anonymous, just like in cash transactions. This e rupee is without any interest as people might withdraw money from banks and convert it to digital rupee – causing banks to fail.

How is Cryptocurrency different from e rupee –

Cryptocurrency is ‘private’ in nature and it is not regulated by any country, any bank, or the developers. On the other hand, CBDC can be regulated and controlled by the central bank. There is no need to mine e rupee hence, there are no environment-related concerns associated with Digital Rupee. Cryptocurrency is also volatile, which means its value can change quickly based on demand (interest in the market in buying them) and supply (how much is available to buy).

Risks involved in CBDC –

Since digitalization is included in the cbdc concept, there is a risk of hacking. It will be RBI’s responsibility to ensure the safety and security of the system. Additionally, there will be a risk to CBDC users’ privacy. It will take quite some time and effort to commence as well as maintain the whole system of payments.

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