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Showing posts with label Indian Rupee. Show all posts

Indian Digital Currency Era – A Quick Look

Compared to more conventional forms of money like cash notes or coins, electronic money stored in bank accounts, mobile banking applications, and credit cards is quickly replacing the public's perception of finance.

The popularity of UPI demonstrates the preference for digital money systems. India has been pushing hard to become cashless, starting with the decision to implement demonetization in 2016. That same year also saw the launch of the real-time payments system known as the Unified Payments Interface (UPI). The paradox in the existing system is that although digital transactions are becoming more common, cash is still very popular in India.

In terms of transaction value, UPI executed 7.3 billion transactions in October, totaling Rs. 12.11 lakh crore, a record high. While volumes increased 73.3 percent during the same period, transaction values increased by 56.6 percent year over year.

Cryptocurrencies vs. Digital Rupee

A CBDC, as defined by the RBI, is "a legal tender issued by a central bank in digital form. It can be exchanged one-to-one for fiat money and is equivalent to it. All that has changed is its form. "

However, it is impossible to directly compare a CBDC to a cryptocurrency.

"A CBDC is not a commodity or a claim on a commodity or a digital asset, unlike cryptocurrencies. They are not money definitely not a currency in the sense that the term has historically been used, "according to the RBI's release.

According to the tracker maintained by the Atlantic Council, 98 nations are currently investigating CBDCs. Of these, 11 nations have started CBDCs. In light of this situation, the RBI is acting in a calibrated way to start CBDCs. It is currently looking into the possibility of implementing wholesale CBDCs based on accounts and retail CBDCs based on tokens.

"When something new enters the market, the old need to adapt, and the new need to control the change", says Nikhil Kamath, co-founder of Zerodha. "While many have been critical of #CBDC, we might be overlooking the big picture, remittances, unbanked economy, and minimizing subsidy leakage."

The increasing use of cryptocurrency stablecoins, which tie their value to another currency or asset, has also alarmed a number of central banks. According to a Press Trust of India report, RBI officials informed a parliamentary finance committee in 2022 that the 'dollarization' of a portion of the economy by cryptocurrencies could be detrimental to the nation's interests.

Money transfers via cell phones would be quick and easy, according to Sathvik Vishwanath, co-founder, and CEO of Unocoin, a rival cryptocurrency exchange. The digital rupee will most importantly aid in the eradication of problems with counterfeit money.

According to FIS's Cheema, adoption of the CBDC in the wholesale sector (CBDC-W) has large benefits and substantially fewer dangers than in the more complicated domain of retail CBDC (CBDC-R). In the future, CBDC-R will supplement existing payment structures, not replace them.

The digital rupee will therefore be available for use by all Indian citizens whenever the RBI begins to print it.




The Indian Government Reportedly Worried Of Cryptocurrencies Destabilizing the Rupee



The Indian government panel entrusted with drafting the crypto regulation is supposedly "fixated" with the effect they might have on the rupee in the event if they are permitted to be utilized in payments. The panel was set up in November 2017 headed by the top bureaucrat Subhash Chandra Garg, Secretary of the Department of Economic Affairs. The board is as of now said to be in the propelled phases of drafting the regulations for cyrptocurrency utilization in India.

One of the representatives from the crypto currency background who as of late met the ministers, asking for obscurity says that

“If bitcoin and other digital currencies are going to be allowed to be used for payments then whether it will end up destabilising the fiat currency is a major concern for them (the Garg panel), the overall impact on the financial ecosystem that it is likely to have is still unclear and it has been a challenge to convince them on this particular point.”

While Garg's panel  is settling its report containing the proposals for the country's crypto regulation , the Ministry of Finance told the Parliament that  “It is difficult to state a specific timeline to come up with clear recommendations”  furthermore that Garg’s panel is “pursuing the matter with due caution.”

The Financial Stability Board (FSB) has effectively distributed a report in October a year ago on the financial stability implications of crypto assets, which expresses that “crypto assets do not pose a material risk to global financial stability at this time.”

In any case, it most likely notes that 'vigilant monitoring' is required keeping in mind the rapid market developments and should the utilization of 'crypto-assets' keep on advancing, it could have some implications for financial stability later on.

The Reserve Bank of India (RBI) also emphasized in its Trend and Progress of Banking in India 2017-18 report that cryptocurrencies are not a risk right now, but rather they do require steady observing on the overall financial strength contemplations, given the fast extension in their utilization.