The Reserve Bank of India (RBI) has been preparing to roll out a central bank digital currency (CBDC) in phases by the end of this year. For a long time, many financial institutions across the world have been battling with the idea of digital currency; even before the current growth of Bitcoin and other cryptocurrencies. An officially recognized digital currency and a part of the day-to-day financial system; this idea has fueled many debates all over the world.
The CBDC’s introduction would be a historic first for India, as it would be the country’s first digital currency. A central bank, such as the RBI, is for supporting the country’s banking systems than functioning as a traditional bank. It functions as a sort of governing body. Thus, the CBDC would be a support system for the financial system or a complement to the existing structures.
In an interview with CNBC, RBI Governor Shaktikanta Das stated that the RBI may launch its first digital currency trial programs by December. This signals that this is only the beginning of a slew of new digital currencies. More and more currencies will be hitting the market in the future. Das added, “We’re being quite cautious about it since it’s a brand new product, not only for RBI but globally.”
What is the Central Bank Digital Currency?
The central bank digital currency (CBDC) is a digital or virtual currency issued by the central bank in the form of a tender. It is similar to existing digital/fiat currency in terms of functionality.
More crucially, it is a legally recognized coin with an existing financial body backing its function. It is also exchangeable one-to-one with fiat currency. The only difference between CBDC and private digital coins like Bitcoin and Ether is that it has a different form. It’s essentially the same as having your money digital, except the value remains the same.
How is it different from Cryptocurrency?
Cryptocurrencies, such as Bitcoin, vary in that they function more as commodities than as a representation of the exact value of a monetary system’s money. One Bitcoin, for example, does not equal one rupee. The greatest distinction is that one must invest in Bitcoin and acquire it with money. Another crucial reason is that these are extremely volatile and have no legal issuer. Whereas the central bank digital money has the RBI as the issuer; implying that the central bank digital currency can be considered money in every sense. For more such updates, keep watching this space!