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.
