#23: Digital Rupee aka CBDC | Explained

All you need to know about CBDC for UPSC

Central Bank Digital Currency (CBDC) aka Digital Rupee to be launched soon by RBI. This post will teach you all you need to know about it for UPSC! Save it to your notes.

This explainer has been contributed by @Conquerias24

What is e-Rupee? ₹💸₹

- Digital form of Indian currency notes
- Based on Blockchain technology
- CBDC will be medium of payment & legal tender
- RBI backed

CBDC v/s Cryotocurrency ₿

- CBDC centralized, Crypto decentralized
- CBDC central bank backed, Crypto has no legal backing

CBDC v/s UPI📱

1. UPI
- Payments made using digital equivalent of existing currency notes
- i.e. every ₹ transferred via UPI is backed by physical currency

2. CBDC
- Digital ₹ to be legal tender in itself
- needs no physical currency backing

Advantages of Digital ₹ 🤩

- Boost to digital economy
- Expands Financial inclusion
- Efficient & secure payments (local + int'l)
- Easier to trace money trail
- Reduced cash dependency
- FinTech & Geopolitical leverage (Like Rupay/UPI)
- Greater push to govt's DBT like initiatives
- Check on counterfeit currency
- Check on corruption
- Corrects inflated prices in industries like Real Estate (going forward)

Disadvantages 😢

- Cybersecurity threats
- Risk to user privacy
- Poor internet penetration
- Low digital literacy
- High cost investments in tech upgrade
- Disintermediation of banks and thus low deposits with banks to invest

What are other countries doing? 💰

- China tested e-CNY (2020)
- Bahamas: CBDC Sand Dollar
- Nigeria: e-Naira
- Ukraine, Sweden are testing CBDCs

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