What is ‘Digital Rupee’ and why should I care?

What is the Digital Rupee?

1. Digital Rupee would be considered as a CBDC (Central Bank Digital Currency), which is a form of cryptocurrency issued by a central bank like RBI from India.
2. It is a digital format of a banknote or bank coins, which will reside in your own wallet.

Why should I care?

1. The introduction of the Digital Rupee is going to change the monetary system and the economics of our country and the world forever! This can be compared to the early days of e-commerce — Amazon, Flipkart, etc.
2. The Digital Rupee will change our payment systems similar to the way that Paytm and Google Pay changed the way we transact.

How is it different from Bitcoin and other cryptocurrencies?

1. Bitcoin, Ether, and similar other cryptocurrencies are “decentralized” — they are not issued by any government, but rather backed by Blockchain technology. On the other hand, the Digital Rupee will be issued officially by the RBI.
2. Unlike the other cryptocurrencies (Bitcoin) which are backed by Blockchain technology, the Digital Rupee may or may not be backed by Blockchain technology.
3. Unlike the value of Bitcoin, which keeps changing every minute, the value of the Digital Rupee will be stable! That means 1 Digital Rupee will ALWAYS be equal to a physical 1 Rupee coin!

How will it be implemented?

1. Just like you have cash in your physical wallet in your pocket, you will now have a digital wallet, which would be a mobile (or a desktop) app.
2. This app will have one or multiple wallets for you (similar to bank accounts).
3. No need for bank accounts — There is a possibility that a Digital Rupee wallet may not need a bank account at all. Your salary could be directly deposited in your digital wallet instead of your bank account.
4. Need for bank accounts — There is another possibility that RBI will still issue the Digital Rupee ONLY through banks and your digital wallet will be somehow connected to your bank account.

What are the benefits?

1. Right now, when you use PayTM or Google Pay, you get options to connect your Credit card, Debit Card or bank account. In the future, your PayTM or Google Pay can directly connect to your Digital Rupee wallet (no need for any middlemen like the banks, card companies, etc)
2. This will also benefit you by making ALL your online payment transactions way easier and in your control — be it buying books online, buying groceries, ordering your food or booking your train and plane tickets!
3. In addition, it will also make it seamless and much easier for various software (mobile apps, websites) to integrate payment systems — ultimately making your life easier.
4. Theoretically, the government could track the movement of money and avoid illegal activities, reducing the black money supply in the country.
5. There are many poor people in villages in India who DO NOT have a bank account or cannot get a bank account. These people could possibly use the digital wallet directly on their mobile phones and start using e-commerce.

What are the risks?

1. As an end-user, one of the biggest risks is that the government might be able to track all your expenses and control where you can spend your money. For example, China conducted an experiment with Digital Yuan last year, in which they could control where you could spend this money.
2. Another risk is that your digital wallet or phone gets hacked and you lose access to all your money. This could be avoided by having additional safeguards in place such as 2FA et al.

Which other countries are implementing this?

According to this report from BIS (Bank of International Settlements) —

1. More than 80 central banks and countries across the world are engaged in research about Digital National Currencies (CBDCs)
2. More than 30 central banks across the world are working on experiments
3. Less than 10 central banks have actually issued a CBDC (either as a pilot or a full-scale rollout) — these include countries like Barbados and China

Disclaimer — I am NOT associated, directly or indirectly, with the Government of India or RBI in any way at all. The details about the exact implementation of Digital Rupee haven’t been announced yet. The content in this article are assumptions based on similar implementations by Central Banks across the world.