The Reserve Bank of India is planning to introduce the Central Bank Digital Currency (CBDC) in the year 2022-23. The CBDC will be a new form of currency that is digitized and centralized. It would not be controlled or managed by any private institutions but by the central bank itself. The RBI has begun testing for this digital currency in March 2018, with the aim of introducing it in near future as a means to reduce costs and increase efficiency. This article will provide an overview of what RBI's CBDC plans are, how will it work, and how it could change the way we access banking services.
While presenting Budget 2022: Finance minister Nirmala Sitharaman declared that RBI will present CBDC utilizing blockchain and other innovations, and Digital Rupee will support the computerized economy.
What is a CBDC?
The RBI has introduced a new form of currency that is digitized and centralized. It would not be controlled or managed by private institutions but by the central bank itself.
What are the benefits of CBDC?
It has been said that the introduction of CBDC will reduce transactions costs and increase efficiency.
It will offer an alternative to the physical currency, which will further improve the efficiency of transactions.
How does CBDC work?
The RBI is testing for this digital currency in March 2018, with aim of introducing it in near future as a means to reduce costs and increase efficiency. The bank is considering an option where all individuals have a virtual account through which they can transact digitally. To withdraw cash from these accounts, individuals will have to go through a process called 'Know Your Customer (KYC) verification - just like opening an account at any private bank.
How does a CBDC work?
Central Bank Digital Currency (CBDC) is a digital form of currency and will be considered to be a cashless system. It is reported that the RBI has been working on this idea since 2016, and is planning to introduce it in the year 2022-23. The RBI has already started testing this currency in March 2018, with a plan to launch it in near future for 10-15% of all transactions made via debit or credit cards.
As there would be no physical money involved, the transaction would only require an agreement between two parties without the need for any mediator. It would also help reduce costs and increase efficiency.
Benefits of RBI's CBDC
The RBI has been increasingly interested in the idea of a digital currency for the past few years. The primary benefit from this move is that it would reduce costs and increase efficiency. Currently, India has to spend USD 2-3 billion annually to import physical cash. But with a digital currency, the RBI could introduce a system where individuals could electronically transfer money to one another without physically exchanging bills or coins. This would drastically reduce the cost of printing paper money and maintaining an extensive network of ATMs across the country.
Another benefit is that this new form of currency would be more secure than current banking methods. It would not be controlled or managed by any private institutions but by the central bank itself. Thus, there would be no risk of hacking attacks as seen with credit card frauds like those seen in Target and Home Depot hacks in 2013 and 2014 respectively which exposed millions of people's private information.
Moreover, India's usage of cash-based transactions is extremely high (60% of all transactions), making this transition easier as it can help reduce cash use considerably. In fact, even though India ranks 6th in GDP per capita on the World Bank list, its territory is ranked 3rd when it comes to using cash for transactions - only behind Afghanistan and Iraq!
Problems with RBI's CBDC
The Reserve Bank of India is planning to introduce the Central Bank Digital Currency (CBDC) in the year 2022-23. The RBI has begun testing for this digital currency in March 2018, with the aim of introducing it in near future as a means to reduce costs and increase efficiency.
However, there are many problems that need to be sorted out before they actually happen. One of the major issues is how will the government protect against all cyberattacks. There have been many cases where hackers have stolen money from people's bank accounts by making transactions online. This would be an issue for digital currencies as well since it would allow for even more cyberattacks.
Another drawback is if you are using cashless transactions and if there is a power outage or internet connectivity problem, then your money will be stuck with no way to access it.
An additional drawback is that there can be too much power concentrated in one place, which comes with its own set of risks like economic instability and inflationary pressures on prices; which would then lead to loss of jobs among banks employees and customers who lose their jobs due to the economic instability.
Conclusion
RBI's CBDC is an ambitious and much-needed project, which will be super beneficial for businesses and the economy in general. It will cut down on costs, enable a faster, transparent, and secure digital payment system, and will take India one step closer to becoming a cashless economy.
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