Finance Minister Nirmala Sitharaman has announced that the Reserve Bank of India (RBI) will launch a central bank digital currency (CBDC). “Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23,” said the FM.
Although the central bank has in the past raised questions on the private virtual currencies, there have been speculations of it launching CBDC. The RBI will launch the Digital Rupee as CBDC. According to the government, Digital Rupee will reduce dependence on cash and it will also reduce settlement risk.
What is CBDC
CBDC stands for central bank digital currency. It is a legal tender that is issued by the central bank in a digital form. In simple words, it is just like a flat currency just in a different form. In this case, the Digital Rupee will be backed by blockchain technology. You will be able to exchange this currency through blockchain-based wallets. It will also be exchangeable with government-issued money.
What is blockchain technology?
A blockchain is a system of recording data that is almost impossible to change, hack or cheat. It is a digital ledger of transactions that is copied and distributed to the entire network of devices on the blockchain. In simple words, the technology will help you to store and transact digital currency. As it is difficult to tamper with, it is also one of the safest ways to exchange currency digitally.
How Digital Rupee will be different from Bitcoin or any other cryptocurrency
Although CBDCs are inspired by Bitcoin there is one big difference. While Bitcoin, Ethereum, DogeCoin and other popular cryptocurrencies rely on blockchain technology, these private currencies lack the status of legal tender. Although they have gained popularity in India, their use is still very restricted. The Digital Rupee is expected to be a legal tender and will be legally accepted throughout the country, since the RBI will be behind it.