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E- Rupee: Differences between Cryptocurrency and CBDC
The Reserve Bank of India has launched its first pilot test programme to evaluate and improve the operation of the Currency as a part of its efforts towards controlling inflation. On 1 November 2022, RBI introduced its first digital rupee for the wholesale market.
The Reserve Bank of India claims that strengthening India's digital economy and improving the efficiency of the payment system will help in reducing money laundering significantly. The settlement of government securities will be done using Digital Currency.
Participating Banks
For this experiment, nine banks have been selected to take part. The list is as follows:
- State Bank of India
- Bank of Baroda
- Union Bank of India
- Kotak Mahindra Bank
- HDFC Bank
- ICICI Bank
- Yes Bank
- IDFC First Bank
- HSBC
About Digital Currency
In essence, it is a digital method of payment that supports contactless transactions. A central bank will issue digital rupees as Central Bank Digital Currency (CBDC).
According to RBI, "CBDC is the legal tender issued in digital form by a central bank. It is interchangeable one-to-one with fiat currency and is the same as fiat currency. Its only distinction is in form." Finance Minister Nirmala Sitharaman stated in the Union Budget 2022 that the RBI would launch its digital currency shortly.
CBDC: Types & Advantages
1. Retail CBDC (e-R)- This type of CBDC might be used by the general population and be available to all.
2. Wholesale CBDC (e-W)- It is intended for regulated access to specific financial institutions.
Benefits of Central Bank Digital Currency
1. It will save money by lowering transaction costs. The government will find it simpler to access all transactions within the authorised networks if the currency is digital.
2. It will assist the government in regulating the flow of money into and out of the nation. It is hard to escape the government's scrutiny through CBDC.
3. It cannot be destroyed, burned, physically harmed, or lost. When compared to physical notes, it is more robust.
4. The interbank market is anticipated to become more effective using the digital rupee.
5. It will also assist in lessening reliance on the currency.
Differences between Cryptocurrency and CBDC
- The main distinction is that while Crypto is decentralised or not connected to or regulated by any government, CBDC is centralised, meaning RBI manages it.
- While cryptocurrencies must be maintained in digital wallets, CBDC is legal cash and can be kept in bank accounts.
- Because of the government's involvement, CBDC is much safer than cryptocurrency. Bitcoin, Ether, and other cryptocurrencies are used for money laundering, tax evasion, and financing terrorism.
- The RBI also disclosed that they intended to introduce a digital currency for the retail sector and in a few restricted places for customers and merchants within a month.
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