The government’s decision to introduce digital rupee is a well-timed recognition of the widespread trend towards cashless payments.
Many countries are exploring the benefits and drawbacks of introducing a central bank-backed digital currency (CBDC) or at an advanced stage of implementation as in the case of China or have introduced a digital currency – the Bahamas – where it is known as the sand dollar.
Considering declining cash use and a lack of universal access to the banking system, it is easy to understand the motivation to introduce a digital currency. It would improve financial inclusivity as well as payment efficiency.
The proposed digital rupee would be a form of currency issued digitally by the Reserve Bank and approved by the central government to be legal tender. It will represent a liability of the central bank.
CBDCs are intended to be the digital equivalent of cash for use by end users such as households and businesses and offer a new option to the general public for holding money.
However, they are different from cash, as they come in a digital form unlike physical coins and banknotes.
They are also different from existing forms of cashless payment instruments such as card payments and e-money, as they represent a direct claim on the central bank, rather than the liability of a private financial institution.
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