The Finance Minister, Nirmala Sitharaman, on February 1, during the presentation of the Union Budget for this year said that the RBI (Reserve Bank of India) will be launching a CBDC (Central Bank Digital Currency) in 2022-2023, making it the first official statement from the Union government of India on the launch of the digital currency.
A Central Bank Digital Currency is not a cryptocurrency rather it is the digital form of legal tender. Private Virtual Currencies are an entirely different thing from these. These are at substantial odds with the concept of money as known to all of us historically.
Sitharaman said that by the introduction of CBDC, the digital economy of the nation will be boosted. The digital currency will be based on blockchain technology. The Reserve Bank of India had indicated earlier that CBDC is being considered even though the Central Bank of the nation is against the idea of giving access to private virtual currency. Given the world-class digital payments system, the introduction of digital currency in India will enhance the nation’s status as a digital economy in the world.
A Central Bank Digital Currency is the legal tender that will be issued in digital form. It is the same as the fiat currency with just the form being different and the digital currency will also be exchangeable one-to-one with the government’s issued currency. In the simplest of words, it is the same as the legal currency we are currently using just in digital form.
This is the digital form of fiat currency and it will lead to erasing of the transactions. A report by the RBI had earlier described this digital currency as something that will be providing a safe, robust, and convenient alternative to the physical currency people are using these days. It can also be assuming the complex form of a financial instrument, depending on the various design choices that will be made available, as per the report.
People assume that the CBDC is like a cryptocurrency but it is not a private cryptocurrency. It is only a digital form of legal tender. Private Virtual Currencies are not commodities or claims on commodities as they hold no intrinsic value of their own. The RBI has said that these private virtual currencies are not representative of anybody’s debt or liabilities. It further added that there is no issuer, and they are not money as it is known historically.
This means that the RBI will not be allowing any banking entity to treat private virtual currencies as assets or liabilities for transactions. The introduction of digital currencies, as per the RBI, has the potential to provide significant benefits including the reduction of dependency on cash. It will most probably lead to more efficient, trusted, and robust tender-based options for the people of the nation.