What is the issue?
- Reserve bank of India is planning to issue digital rupee.
- In this context, RBI needs to address privacy and transparency concerns involved in digital currency.
What is Digital India rupee?
- Digital Indian rupee is a sovereign digital fiat currency with a government determined value, which is about to be issued by RBI.
- It is a bearer instrument just like paper notes and coins.
- It is protected with layered hardware, software, protocol security and currency laws.
- Digital payments conducted with the digital India rupee are settled and finalised by cash at the point of exchange.
- This will address the issues of monetary supply, digital counterfeit, convertibility and acceptability.
- A digital legal tender gives the authority the visibility of the pattern and behaviour of the digital currency in circulation.
- The persons transacting or the contents of the transaction are not disclosed unless there is adequate suspicion in the transaction.
What are the challenges with e-money?
- The present forms of e-money are liabilities issued by the service providers.
- With private e-money service providers fielding methods, the questions of regulation, accountability and a universal approach become a large issue.
- Convertibility of these private e-monies to legal tender rupee is subject to the financial management and operational soundness of the service providers.
- Acceptability of e-money between different schemes is not a given, and is subject to the mutual agreements between the service providers.
- Disruptions, such as fraud and errors, can lead to the loss of funds that either the consumers or providers have to compensate.
- There is a lot of talk around personal information and privacy protection in our digital lives these days.
- Governments are extremely concerned with digital means being exploited for illicit activities like money laundering and terrorists’ funding.
What are the advantages of digital India rupee?
- With the use of digital India rupee through existing e-money services, it will not require any expensive infrastructure or transformative technologies to enable its use.
- There is no need for subsequent settlements between the ledgers of the e-money service providers, and other intermediaries.
- The value of the currency is backed by the credit worthiness, assets and productivity of the nation.
- It will accelerate the shift from an informal to formal economy, eliminating ‘negative elements’ from the financial system.
- This will also remove the labour intensive factors and financial risk costs associated with reconciliations and settlements.
Source: BusinessLine
