The Reserve Bank of India (RBI) released a Concept Note on Central Bank Digital Currency (CBDC) – the Digital Rupee (e₹), on Friday, 7th October 2022, with the view to share the planned features of the Digital Rupee and to create awareness and explain the exact nature, objectives, functionality, benefits, choices and risks attached with it.

In a statement, the RBI quoted – “The concept note also discusses key considerations such as technology and design choices, possible uses of the digital rupee, and issuance mechanisms, etc. It examines the implications of introduction of CBDC on the banking system, monetary policy, financial stability, and analyses privacy issues.”

The Digital Rupee will be a legal tender to be used for real-time transactions without the need of any intermediary bank. This simply means that the holders need not have a bank account, it will be stored in a digital wallet, and payments can easily be made in other countries as well.

RBI has proposed a model where they issue the e-rupee and commercial banks would be assigned to distribute it. All real-time transactions, regulations and control will be made through the central bank.

To enhance the scope of digital payments with a view to expedite the cashless economy and for many other reasons – like bringing a reduction in cost associated with printing and management of physical cash, no environment-related concerns – this mode of exchange is some welcome innovation.

The RBI is hopeful that introducing the Digital Rupee will bolster India’s digital economy, enhance financial inclusion, and make the monetary and payment systems more efficient.

However, there would be challenges and risks that come with digitalization, for which the Central Bank is working on the possible scenarios and putting systems in place, so as to ensure the safety and security of the financial infrastructure.

Running and successfully maintaining a massive infrastructure for this kind of exchange scale will take time and effort to commence fully. However, The Reserve Bank shared that they will soon begin pilot launches of e₹ for specific use cases. As the extent and scope of such pilot launches expand, RBI will continue to communicate about the specific features and benefits of e₹, from time to time.

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