10 reasons why digital rupee is the future of money

The Reserve Bank of India (RBI) has announced that the first pilot in Digital Rupee – Retail segment is planned for launch within a month in select locations. The central bank said that nine banks — State Bank of India (SBI), Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC — have been identified for participation in the pilot project.

Livemint spoke to experts on reasons why digital rupee is the future of money

1) Centralised

Central bank digital currency (CBDC) – a new digital form of money issued by central banks – may just be the new infrastructure we need for ushering in more trust, resilience, and efficiency.

Manoj Dalmia, Founder and Director, Proassetz Exchange said the money will be in virtual form just like other cryptocurrencies but the digital rupee will not be decentralized, but will be regulated by the Reserve Bank of India (RBI). The digital rupee will be completely legal and acceptable by the Indian Government.

2) Ease of use

Pranav Arora, Managing Director and Lead – Applied Intelligence, Accenture in India, said that every unit of CBDC can be uniquely identifiable and traceable. Secondly, it could be made programmable i.e., there is potential to add multiple dimensions like prescribed end uses, time limit and transferability. Finally, CBDC is recorded on blockchain-powered distributed ledgers which allows all participants / banks to record the transactions and balances. 

Taken together, these three differentiating characteristics – identifiability, programmability, and distributed ledgers – can unleash a new set of economic possibilities, added Pranav Arora.

3) Global acceptance

There will be no longer geographical limits with the internationalization of current and financial account transactions. “A Digital Rupee that can be held by non-residents and is available to conduct cross-border financial transactions seems a natural extension to enable new retail payment possibilities and business ventures,” said Dalmia.

4) Transparency

“The launch of Digital Rupee in India is expected to usher in more efficiency, transparency, systemic resilience and governance in our currency management system,” said Pranav Arora.

“RBI data shows that from 2018 to 2020, Indian banks lost approximately USD 50 billion to fraud. According to a CVC report, one of the main reasons for the top 100 cases of fraud is the improper end-use of lent funds. While the current system relies on post-facto checks such as CA audit reports and stock statements etc, a digital currency could address these problems proactively with installed programmability and regulated traceability,” said Dalmia.

5) No bank account needed like that for UPI

Anup Nayar said that among the major advantages of the move is that one doesn’t even have to open a bank account in order to transact.

 6) The payment via digital currency or rupee will be real-time

Pranav Arora said that at a macro-economic level, the Digital Rupee can offer real-time visibility and insights into the state of the economy and thereby, enable more precise execution of the monetary policy.

7) Likely to save operational costs of printing, distributing and storing banknotes

According to Anup Nayar digitised currency will minimise the costs involved in printing, distribution and logistics management of cash. 

“Not only will the rollout reduce the dependency on cash, it will forever remain mobile unlike currency notes,” Nayar added.

“India’s 17% cash propensity, the ratio of cash withdrawn to GDP, is higher than those of the Nordic countries, such as UK and Australia. Moving to digital payments and digital currency could reduce dependency on cash,” said Manoj Dalmia.

8) Governments can access all transactions happening within the authorised networks

Anup Nayar is of the opinion that the adoption of the digital rupee is also likely to play a pivotal role in enabling easy monitoring of Direct Benefit Transfers (DBT), making them relatively faster and reducing malpractices in the payment system. Increasing the efficiency of digital transactions will surely add another dimension to digital governance.

9) Cannot get physically damaged or lost

Archit Gupta, Founder and CEO of Clear said that the benefit of digital currency is that they do not get torn, burnt or physically damaged. Neither can they be physically lost. “The lifeline of a digital currency will be indefinite compared to physical notes,” he added.

10) Fraud
The Digital Rupee can help prevent fraud. Pranav Arora said that while the current system relies on post-facto checks to prevent fraud, CBDC could address this proactively with embedded programmability and regulated traceability. 

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