Digital Rupee and the Impact of Same on the Indian Economy
The Financial landscape of India has seen progressive evolution from commodity to metallic currency, paper currency and now the digital version. The RBI and the government have been very innovative in their approach to fortifying digital payments. The Digital economy is unveiling and popularizing services that are more sophisticated and advanced. When we talk about a sustainable financial economy the focus primarily lies on reducing the cost and usage of cash. According to a report, RBI has spent about ₹4,984 crores in printing the currency, excluding the expenses of additionally associated activities such as storage and transportation of same. On the 1st of November 2022, the pilot Digital Rupee was launched, although it’s not released to the public officially, and its impact is conjectural. Let’s understand the mechanism and impact of the digital Rupee on individuals, businesses, and the economy.
How is Digital Rupee different from Cryptocurrency?
Digital Money, also known as CBDC, stands for Central Bank Digital Currency. It is a sovereign currency which functions on standard financial policies regulated by the central bank. While Cryptocurrency is a digitalised and decentralised medium of exchange which is not monitored by any bank directly or indirectly, and the transactions are recorded in a public ledger in an eWallet. On the contrary, CBDCs are regulated by central authorities with the help of third-party organisations however, the transactions carried out using cryptocurrency are verified without being monitored.
Management of Digital Rupee (CBDC)
The government has come up with two models, for managing CBDCs,
- Direct Model: In the direct model, the central bank manages all the transactions and takes responsibility for monitoring them.
- Indirect Model: The currency is issued to the customers through banks and third parties functioning as intermediaries.
How Does the Digital Rupee Impact Indian Businesses?
The intent of launching the pilot of the digital rupee is to settle inter-banking transactions, the retail segment will be launched soon, focusing on the business interests and niche. The retail e-Rupee will be in the pilot, and consequentially it will roll out on selected locations for picking merchants and customers. Not to deny that most business transactions happen online since manual cash tracking is easier said than done. There are chances of errors in the digital accounting software as the entries are marked manually.
With the eRupee, the probability of fraud and Money laundering reduces to Zero, with settlement risk getting non-existent and it will probably be one of the most popular payment trends for enterprises. Albeit, RBI is currently planning to introduce the e-Rupee, via an indirect route. Ensuring that the liability of the currency is under the central bank and distribution is undertaken by the private authorities. This also means that people will receive their digital Rupees in a digital wallet, and these digital wallets would be liable for maintenance just as banks manage physical cash reserves. Businesses need to prepare themselves for a smoother adoption of e₹ across the retail space, also the option will be soon visible on the regular payment platforms.
How Does the Digital Rupee Impact Individuals?
RBI intends to launch the digital rupee as a non-disruptive add-on to the economy. The impact on the consumers directly is likely to be very small, however, this will be an additional mode of payment available to them for making their purchases.
Just like UPI and other banking instruments, consumers can avail the benefits of the Digital Rupee as a reliable payment mechanism. For Individual consumers, the distribution of e₹ would be through e-wallets, and they can receive money/salary in digital cash or get their physical currency converted. The “how’s?” are yet to be answered by the authorities since the project is still in the pilot stage and the mechanisms are yet to be stabilised.
How Does the Digital Rupee Impact the Indian Economy?
If not completely banned, the cryptocurrency did face firm dissent from RBI. The authority has opposed the use of 'Private Virtual Currencies' as these are difficult to regulate. Since crypto transactions are beyond the control of RBI tracking and can lead to illegal black-market transactions and shadow economies. However, one does not turn a blind eye towards the benefits these virtual currencies have over physical cash. The digital rupee is a non-disruptive supplement to the current economy and does not aim to replace it. The innovative introduction would gravitate the economy towards digital payments, and it will hopefully result in limiting the expenses of physical cash. Digital currency asks for financial and technological awareness; thus, people will get curious to learn about it. FinTech is prevailing in India since digital payments increased with a good percentage of more than 55% in the last few years.
Digital transactions are taking over the world at full tilt, and technologically advanced financial platforms are getting introduced in the FinTech market. Digital Rupee is highly promising, and it will soon be a part of mainstream society. Smart Pay-outs, Seamless merchant onboarding and automated payrolls are the high-tech features that have been taking the FinTech space by storm, and Pay10 is a leading Payment Service provider that has mastered the new trends. To learn more about the latest information and updates, along with the features offered by Pay10 to fortify your customer's money and data, check our official website.