Several countries, like the United States in particular, are also set to roll out their own central bank digital currency (CBDC). Thus, this timely release of Digital Rupee is welcome.
For a currency to be used in the market, it must be authenticated and validated. The digital rupee is India’s answer to producing a digital currency where its validity will not be in question. Moreover, it will provide people with a stable cryptocurrency that they can use as a cashout option on a daily basis. The impact of the digital rupee cannot be overstated, as it has the potential to redefine the way money is used, traded and managed.
How Digital Rupee will transform fintech
For a country as large as India, managing printing, sourcing and cash logistics is too expensive. Now, the introduction of the digital rupee in a post-pandemic era when people are aware of digital payments and are more willing to accept them will significantly reduce the logistics costs of handling cash.
Compared to riskier virtual digital assets, the digital rupee allows users to always guarantee reliable transactions. In addition, this currency will not be subject to volatile market changes. Even during unprecedented times like the pandemic, the digital rupee will experience adverse market conditions as it is regulated and monitored by the RBI.
The impact of the digital rupee on Indian fintech players: Countries like El Salvador have made Bitcoin legal tender, and Cambodia and the Bahamas have already started accepting and using crypto as legitimate currency. It is high time for India to join this market.
A CBDC report said, “This may be imperative in the future as the use of cash declines and new forms of ‘value transfer alternatives’ become more widely used in the payment cycle.” This means that now is precisely the time for Indian fintech players to adapt to digital currency transactions. Additionally, the digital rupee, based on Distributed Ledger Technology (DLT), will have a monumental impact on push payments. Now is the perfect time for banks and financial services players to implement the necessary measures to ensure they are ready for the new asset class.
Impact of CBDCs: CDBC provides much-needed sovereignty and ensures that people are ready for change in the future. The positive impact of CDBC was perhaps best stated by Mr. Monish Shah, Partner at Deloitte India: “The interest-free tokenized digital rupee is closest to cash and can pave the way for digital currencies of the central bank (CBDC),” he said. noted. Considering the future of international trade, with the digital rupee being the first attempt, it will surely give way to multi-currency CBDCs, thereby enabling India to participate with other countries that are significant and stable trading partners.
Further, T Rabi Sankar, the Deputy Governor of the RBI, said in a speech last year, “Payments using CBDCs are final and reduce settlement risk in the financial system. The need for interbank settlement is eliminated if the digital rupee is processed on an UPI-like system,” said T Rabi Sankar.
This potentially means that, for example, an Indian seller can pay their European supplier in real time without the delay of intermediaries that are required today. Thus, effectively eliminating time zone differences in money transfer.
The digital rupee is India’s first towards reliable and credible cryptocurrencies and one of the most promising steps towards a digital India. With the introduction of the digital rupee, citizens can now have a cryptocurrency that they can safely use and rely on in the future.
— Sameer Aggarwal is the founder and CEO of RevFin. The opinions expressed here are personal.