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| Journey of Digital Currency in India | |||||||||
| Paper Id :
17195 Submission Date :
12/02/2023 Acceptance Date :
22/02/2023 Publication Date :
25/02/2023
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| Abstract | Central Bank Digital Currency (CBDC) is a milestone in boosting India’s economy and in the establishment of its position as front runner to the economies of rest of the world. This is a breakthrough innovation in digital payments and an achievement under the umbrella of digital India. The Reserve Bank of India (RBI) has introduced the first pilot in the Digital Rupee - Wholesale segment (e₹-W) as well as in Digital Rupee - Retail segment (e₹-R). The major motives behind CBDC are strengthening financial inclusion, easing cross boarder payments and reducing operational cost etc. This is a conceptual study and has discussed the journey of digital currency in India. The concept of digital currency has been elaborated and further the implication of introduction of digital rupee in Indian economy has also been considered. | ||||||||
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| Keywords | Digital, CBDC, Digital Rupee, Block Chain. | ||||||||
| Introduction |
The introduction of Central bank Digital Currency (CBDC) has revolutionized the payment system in India and created a created a milestone in strengthening the economic position in front of the economies of rest of the world. India has crossed a landmark pathway under the flagship of Digital India. The concept of money which is used as a medium of exchange has passed through different stages like metallic, paper and finally in digital form.. The enactment of a separate law for payment settlement has framed the things in a more defined and orderly manner in terms of security and execution of transactions. The online transactions are more convenient and facilitate an alternative for cash and other paper formalities.
CBDC is in its infancy stage and successful adoption of this digital payment method could drastically change the structure and functions of various stakeholders and institution in the economy. The implementation of CBDC in a phased manner will also necessitate the legal and regulatory changes. The initiative to enter in path of digital currency by the Central bank was based on aspiration of joining hands with other central banks that have already issued a CBDC. The Reserve Bank of India (RBI) also wants to have momentous development in digital transactions. It will also help in coping up with the threat caused by already prevailing private digital currencies Peterson K. Ozili (n.d).
Electronic era has shifted the payment preferences towards various online modes of payments. The ongoing up gradation in technologies has also expedited the process of adoption of digital mode of payment as an effective and efficient system. The significant increase in the online transactions through various modes like Unified Payments Interface (UPI), UPI QR, Paytm etc. has shown that India’s economy is ready to accept a legal tender in form of CBDC as digital payment mode. All these developments have created a strong base for launching the implementation of CBDC in phased manner.
Central banks provide money in a nation by two modes i.e. cash and reserve & settlement accounts. The mode of dealing with the public is cash whereas with banks and other financial institutions it operates through reserve and settlement account (BIS, 2020). CBDC will introduce itself as new mode of money on a digital platform. Both public and financial institution will be allowed to use this in a phased manner. The Covid-19 has drastically replaced the cash payment with the digital one and CBDC will add on a new chapter in this regime in a safest way under the umbrella of RBI.
The rest of the paper is structured as follows: Section two briefs the objectives of the study; further section three shows the research design. Section four presents the reviewed literature and section five discusses the meaning of digital currency. Section six explains the launch of CBDC in India whereas section seven describes the status of pilot project of CBDC in India. Finally, section eight concludes the study. |
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| Aim of study | The study is based on the following objectives: 1. To discuss the concept of digital currency 2. To through light on the launch of CBDC in India 3. To explain the status of pilot project of CBDC in India | ||||||||
| Review of Literature | Dr. Pradipta Mukhopadhyay (2021) explained the current
status of digital currency in India and discussed the meaning of digital
currency. The data for the study has been collected via direct and indirect
mode. The various segments like crypto currency, digital currency networks has
been highlighted. Anton N. Didenko and Ross P. Buckley (2021) discussed the
opportunities and challenges of CBDC in terms of financial inclusion for
countries in pacific region. It has concluded that a well-designed and
implemented, CBDC will likely offer the best solution to the financial
inclusion and remittance problems that bedevil the Pacific region. Further it
states that this digital payment system will come with wide benefits and
shocks. Any country which is adopting this CBDC will require considerable
expertise and deep understanding of design issues.
Peterson K. Ozili (n.d) explored and discussed about
digital rupee in India and briefed its advantages and issues of its adoption.
The study further found that Indian people who were interested in
‘cryptocurrency’ information were also interested in ‘central bank digital
currency’ information. |
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| Main Text | Meaning of Digital Currency Digital currency is virtual money having no physical form
and is exclusively operational on digital devices. This mode of currency is
also used for purchase of various goods and services and in specific cases
restrictions are imposed for its usage in certain online communities like
gaming etc. So, the digital currency that is used as medium of exchange has
real value and if it is used in specific online communities then it will hold
no real value (Dr. Pradipta Mukhopadhyay ,2021). The prime responsibility of any central bank in a country
is to provide and facilitate money circulation to the public. However, issuance
of CBDC is an additional benefit provided by the RBI which will make payment
system more flexible and convenient. These decisions are sovereign in nature
which is made by the jurisdiction of a country. (BIS, 2020). Definition of CBDC CBDC is “a digital form of central bank money that is
different from balances in traditional reserve or settlement accounts” (BIS,
2020) According to RBI, CBDC is a legal tender in digital form
and it will be same as the sovereign currency. The CBDC which is also termed as
e-Rupee will be exchangeable at par with existing fiat currency. Further as a
safe store of value it will be acceptable as medium of exchange (PIB, 2022a). According to the report of BIS, 2020 the following points
should be considered by any nation which is issuing CBDC: 1. The issuance
of CBDC will not make any compromise with the monetary and financial stability
of a country. 2. The adoption
of CBDC should promote innovation and efficiency in financial sector of an
economy. 3. This is
necessary that CBDC should complement the existing form of money. 4. There should be a convenient system which will
make it available to the public at large. 5. The adverse
impact of the launch of CBDC on financial intermediation should also be taken
into consideration. Launch of CBDC in India The CBDC i.e. digital rupee has been announced by the
Government of India in Union Budget which is placed in the parliament on
February 1, 2022 The value size of e-rupee would be same as of banknotes
and coins distributed by the banks. Launch of e₹-W: The CBDC in wholesale sector
was launched on November 1, 2022. According to RBI, this pilot project was
launched for the settlement of secondary market transactions in government
securities. The wholesale CBDC is meant for financial institutions. This project
is also focused on making inter-bank market more efficient. The following is
the identified list of banks for this pilot programme: 1. State Bank of India 2. Bank of Baroda 3. Union Bank of India 4. HDFC Bank 5. ICICI Bank 6. Kotak Mahindra Bank 7. Yes Bank 8. IDFC First Bank 9. HSBC Launch of e₹-R: The CBDC in retail sector
was launched on December 1, 2022. e₹-R is a form of fiat currency and is a
digital token that represents a legal tender. It was launched in close
user group (CUG) and there were comprising participating customers and
merchants (PIB, 2022 b). In this case transactions can take place in
Person to Person (P2P) and Person to Merchant (P2M) (PIB, 2022 b). This
is meant for private sector and Indian citizens. It will be distributed through
financial intermediaries which are banks (ABP News Bureau, 2022). The following
banks are participating in retail pilot project in a phased manner: 1. State Bank
of India, 2. ICICI Bank, 3. Yes
Bank, 4. IDFC First
Bank. 5. Bank of
Baroda, 6. Union Bank
of India, 7. HDFC Bank
and 8. Kotak
Mahindra Bank In the first phase, the e₹-R will be launched by
four banks in four cities. These four cities are Mumbai, New Delhi, Bengaluru
and Bhubaneswar. The lending banks in this phase are State Bank of India, ICICI
Bank, YES Bank, and IDFC First Bank. Afterwards, this pilot will be extended to
the Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and
Shimla Status of CBDC Pilot Project in India According to data compiled by the state owned banks,
after the launch of e₹-W pilot project, the trades worth Rs. 7140 crore
were settled by using CBDC in November, 2022 (Times of India, 2023). In
November, 2022, e₹-W pilot recorded a daily average of ₹ 325 crore (Jaspreet
Kaur, 2023). According to Clearing Corporation of India Ltd (CCIL), the
following facts are provided for transactions related to e₹-W pilot during the
month of November, 2022 (Business-Standard, 2022):
RBI created Rs 3-crore digital currencies in the first
two days of the pilot project in retail segment (Business Standard, 2023).
After the launch of e₹-R, the digital currency is progressing well and after
its launch 16,000 users conducted transactions worth approximately ₹64 lakh
(The Hindu Business Line, 2023).
CCAvenue the brand of Infibeam Avenues Ltd has been
selected India’s first payment gateway player to process Central Bank Digital
Currency (CBDC) transactions for online retail merchants. It will strengthen
the India’s digital payment system in a more efficient manner (Livemint, 2023). |
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| Methodology | The study is conceptual in nature and used the secondary data for discussing and explaining various concepts and facts. |
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| Conclusion | There is need for doing the cost-benefit analysis of this mode of payment from the perspective of various stakeholders at the level of Government as well as Central bank. Though there are number of advantages for the adoption of CBDC but as every coin has two facets, so this digital payment has also some limitations too. Therefore, there is a requirement for doing more in depth analysis for overcoming those limitations. CBDC can be proved as a significant financial tool for safe mode of payment and money circulation and simultaneously will promote digitalization that is the demand of current era. | ||||||||
| References | 1. ABP News Bureau (2022). Digital Rupee: RBI to Launch e₹-W, Its First Pilot for Wholesale Segment On November 1. October 31, 2022, Retrieved on January 25, 2023 from https://news.abplive.com/business/crypto/digital-rupee-e-w-rbi-to-launch-first-pilot-for-wholesa le-segment-on-november-1-central-bank-digital-currency-wholesale-digital-currency-1560792
2. Anton N. Didenko and Ross P. Buckley (2021). Central Bank Digital Currency: A Potential Response to the Financial Inclusion Challenges of the Pacific, Issues in Pacific Development, No. 3. Retrieved on December 15, 2022 from https://www.adb.org/sites/default/files/publicati on/ 720016/central-bank-digital-currencies-pacific.pdf
3. BIS (2020) Central Bank Digital Currencies: Foundational Principles and Core Features. Retrieved on January 25, 2023 from https://www.bis.org/publ/othp33.pdf.
4. Business Standard (2022) Retail CBDC pilot starts Dec 1, to be tested in 4 banks, 4 cities initially. Retrieved on February 8, 2023 from https://www.business-standard.com/article/econo my-policy/rbi-to-launch-first-pilot-for-retail-digital-rupee-from-dec-1-with-8-banks-12211290 0833_1.html
5. Business Standard (2023) Transactions in CBDC pilots gather pace, all minor glitches fixed swiftly. Retrieved on January 25, 2023 from https://www.business-standard.com/article/econ omy-policy/cbdc-pilots-wholesale-segment-averages-rs-325-crore-a-day-in-november-122120 600922_1.html
6. Dr. Pradipta Mukhopadhyay (2021) A Case Study on Digital Currency with a Special Reference to India, International Journal of Advanced Research in Science, Communication and Technology (IJARSCT), Volume 7, Issue 2, July 2021, pp. 727-735. Retrieved on December 12, 2022 from https://ijarsct.co.in/Paper1797.pdf
7. Jaspreet Kaur (2023) RBI To Expand Use Cases Of CBDC Based On Learnings From Pilot Projects. Retrieved on February 8, 2023 from https://inc42.com/buzz/rbi-to-expand-use-cases-of-cbdc-based-on-learnings-from-pilot-projects/
8. Livemint (2023). Infibeam Avenues Brand CCAvenue to Process Digital Rupee. January 30, 2023. Retrieved on February 7, 2023 from https://www.livemint.com/industry/banking/infibeam-avenues-says-ccavenue-becomes-india-s-first-payment-gateway-player-to-process-digital-rupee-1167505839 9175.html
9. Peterson K. Ozili (n.d) Central bank digital currency in India: the case for a digital rupee. Retrieved on December 15, 2022 from https://papers.ssrn.com/sol3/papers.cfm?abstract_id= 4238138
10. PIB (2022 a). India: One of the Pioneers in Introducing CBDC, Research Unit, Ministry of Information and Broadcasting, Government of India. Retrieved on January 25, 2023 from https://static.pib.gov.in/WriteReadData/specificdocs/documents/ 2022/dec/doc2022121139201.pdf.
11. PIB (2022 b) ank Digital Currency (CBDC) pilot launched by RBI in retail segment has components based on blockchain technology. Dated 12 DEC 2022. Retrieved on February 08, 2023 from https://pib.gov.in/PressReleasePage.aspx?PRID=1882883
12. Press Information Bureau (2022) India – One of the pioneers in introducing CBDC, Research Unit, Ministry of Information and Broadcasting, Government of India, RU-14-02-0205-011222/FACTSHEET. Retrieved on December 14, 2022 from https://static.pib.gov.in/WriteRea dData/specificdocs/documents/2022/dec/doc2022121139301.pdf
13. The Hindu Business Line (2023) Promising pilot. CBDC-R users to hit 50,000 by Jan-end on better acceptance, January 9, 2023. Retrieved on January 25, 2023 from https://www.thehindub usinessline.com/money-and-banking/number-of-cbdc-retail-users-estimated-to-touch-50000-by-jan-end/article66356886.ece
14. Times of India (2023). Union Budget 2023: 5 ways to make digital rupee or CBDC a success. Retrieved on January 25, 2023 from https://timesofindia.indiatimes.com/business/budget/union-budget-2023-5-ways-to-make-digital-rupee-or-cbdc-a-success/articleshow/96948280.cms |
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