GS Paper - 3 (Economy)

India's very own official digital currency is likely to debut by early 2023, which will mirror any of the currently available private company-operated electronic wallets, but with a change that it will be a sovereign-backed facility. Finance Minister Nirmala Sitharaman in her budget speech talked about launching a central bank-backed 'digital rupee' soon.

What

  1. The digital currency issued by the RBI would be numbered in units, just like every fiat currency has a unique number.
  2. The units issued in digital rupee would be included in the currency in circulation.
  3. It would not be very different from fiat currency. It would be more like an electronic form of fiat currency, so in a sense it would be a government-mandated electronic wallet.
  4. The digital rupee blockchain, being developed by the Reserve Bank, would be able to trace all transactions, unlike the current system of mobile wallet offered by private companies.
  5. Digital currency will also lead to a more efficient and cheaper currency management system.
  6. The exact regulation governing this Central Bank Digital Currency (CBDC) is yet to be finalised.
  7. CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies or cryptocurrency that have mushroomed over the last decade.
  8. Private virtual currencies do not represent any person's debt or liabilities as there is no issuer. The government has already said that private cryptocurrencies will never be a legal tender.
  9. The RBI has been strongly opposing private cryptocurrencies as they could have implications on national security and financial stability.