WHAT IS THE DIGITAL RUPEE, WHEN WILL IT BE AVAILABLE, AND HOW DOES IT DIFFER FROM PRIVATE CRYPTOCURRENCIES? 10 IMPORTANT QUESTIONS ARE ADDRESSED.

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The Reserve Bank of India (RBI) will launch a central bank digital currency (CBDC) in 2022-23, according to Union Finance Minister Nirmala Sitharaman. This is the first formal declaration from the Union government on the much-anticipated digital currency.

The establishment of CBDC, according to the FM, will strengthen the digital economy and will be based on blockchain technology. The Reserve Bank of India (RBI) has previously stated that CBDC is on the cards, despite the fact that the central bank is opposed to allowing private virtual currencies.

Given India's world-class digital payments system, the launch of CBDC, according to the FM, will further boost India's status as a digital economy.

1.What exactly is a CBDC?

The legal cash issued in digital form by a central bank is known as digital currency. It's the same as fiat cash, but in a different form, and it may be exchanged for government-issued money one for one. To put it another way, CBDC is the same as the legal tender we use. It's only that it's available in digital format.

2. What is the Digital Rupee and how does it work?

A CBDC is a digital version of fiat currency that will make transactions more convenient. CBDC was previously described in a paper by the RBI as a "secure, resilient, and convenient alternative to physical cash." It can also take on the complicated shape of a financial instrument, according to the RBI report, depending on numerous design decisions.

3. Is CBDC a cryptocurrency in the same vein as Bitcoin?

No. CBDC is a public cryptocurrency, not a private cryptocurrency. It is a digital type of legal tender, as opposed to private virtual currencies. Private virtual currencies are diametrically opposed to the traditional understanding of money. Because they have no intrinsic worth, they are not commodities or claims on commodities.

4. What is the RBI's response to assertions that private cryptos are gold-like assets?

Private virtual currencies, according to the RBI, do not represent any person's debt or liabilities. "There is no one who is the issuer. They are not money (definitely not currency) in the traditional sense of the phrase "On July 22, RBI Deputy Governor T Rabi Sankar stated. This effectively means that no banking body can treat private virtual currencies as assets or liabilities for transactions, according to the RBI.

5. What is the RBI's position on CBDC?

According to Sankar, the implementation of CBDC has the potential to deliver major benefits, including reduced reliance on cash, increased seigniorage due to lower transaction costs, and lower settlement risk. According to Sankar, it might also lead to a more strong, efficient, reliable, regulated, and legal tender-based payment solution.

6. What is the RBI's position on CBDC in relation to private cryptocurrencies?

The emergence of private virtual currencies, according to Sankar, could be another reason why CBDCs are required. "It's unclear what precise need these private virtual currencies fill that official money can't, but that may not be a deterrent to their acceptance." National currencies with limited convertibility are likely to be threatened if these virtual currencies gain traction, according to Sankar.

7. What are the hazards of CBDCs, according to the RBI?

Sankar addressed some of the concerns involved with CBDCs, claiming that the availability of these currencies will make it easy for depositors to remove their funds if a bank is stressed. "When compared to cash withdrawal, deposit flight can be more faster," Sankar remarked.

On the other hand, simply having CBDCs available may prevent panic "runs" because depositors know they may withdraw fast. According to the deputy governor, one consequence could be that banks are compelled to keep a higher level of liquidity, which could result in poorer profits for commercial banks.

8. When will the RBI implement CBDC?

In his Budget speech, the Finance Minister announced the launch of the Digital Rupee. Following Cabinet agreement, the government will request that the central bank begin preparations for the launch. The RBI has already started laying the groundwork. According to the government's and RBI's statements, the Digital Rupee is likely to be launched this year.

9. What does the future hold for India's private virtual currencies?

There is currently no clarity about this. The government is working on legislation to regulate cryptocurrencies, but it is not scheduled for consideration during the current Budget session. In terms of private virtual currencies, the central bank is likely to continue in a wait-and-see position until the government clarifies regulation.

10. The administration announced a crypto tax of 30%. What does this imply?

The government declared a 30% tax on private digital assets, which is commonly regarded as an indirect acknowledgement of the existence of these tools. However, this does not imply that these assets are recognised legally in the proper sense. This is a contentious issue. CBDC, on the other hand, could happen sooner, based on current evidence.

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