RBI looking to introduce Central Digital Currency

In today’s new age where everything is becoming digital, there is a necessity for us to keep up with the changing times. Currency being the basic defining unit of value has been observing the popularity of its digitalized versions in the form of various virtual currencies such as bitcoins.
India has now decided to put its foot down and introduce its own Central Bank Digital Currency.

What is Central Bank Digital Currency?

Central bank digital currency (CBDC, also called "Digital Fiat Currency" or "digital base money") is the digital form of fiat money which is a currency established as money by government regulation or law.

RBI introducing digital currency in India

RBI is looking into the possibility of introducing ‘Central Bank Digital Currency’ in India, which could be a revolutionary step if implemented efficiently.

At the end of the two-day meeting of Monetary Policy Committee (MPC) of the RBI, Deputy Governor B P Kanungo said, "While many central banks are still engaged in the debate, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency."

Central Bank Digital Currency is confused with crypto-currency and other virtual currencies most of the time but cryptocurrency was introduced to neutralize the value of currency so that banks aren’t able to control the rates of interest with regard to inflation and deflation whereas CBDC only digitalizes the entire process of banking and usage of currency in the country has perks of its own.

Current status of cryptocurrencies in India: 

In early 2018 India's central bank the Reserve Bank of India announced a ban on the sale or purchase of cryptocurrency.

India’s Finance Minister, Arun Jaitley, has confirmed that the country’s government will not recognize cryptocurrencies as legal tender, adding that authorities will seek to ramp up efforts to “eliminate” the use of virtual currencies in illicit transactions.

Difference between other currencies and Central Digital Currency: 

Central bank digital currency is different from "digital currency" (or virtual currency and cryptocurrency), which are not issued by the state and lack the legal tender status declared by the government.

“Digital currencies” would be a closer representation of the currency we use every-day to make purchases in our current fiat system. Whereas “virtual currencies” are often more-so associated with some of the things related to buying in-app, or in-game items.

Perks of implementing the system of Central digital currency:

• Safety of payments systems 
• Protection of money as a public utility 
• Preservation of seigniorage income 
• Financial inclusion that allows any legal citizen to set up a bank account easily.
• Technological efficiency used to make transactions with no intermediaries.
• Banking competition increases due to free accounts thus initiating programs to attract more deposits.
• Monetary Policy transmission which will consist more of direct control of money.
• Financial safety by limiting the practice of fractional reserve banking.

Cedrus’ role in acknowledgment of CBDC

Cedrus is here to provide you with professional financial advice regarding your knowledge on CBDC and the right way of taking interest in it. We understand the need of our clients requiring extensive research on how different currencies co-exist in the world economy and how their values are daily changing.