Summary:
The digital rupee will be the digital version of physical currency. A digital currency, commonly known as a rupee, is an electronic form of money that may be used in contactless transactions. Finance Minister Nirmala Sitharaman declared in her presentation of the Union Budget 2022 that the Reserve Bank of India (RBI) will shortly launch its digital currency.
Details:
The Central Bank Digital Currency (CBDC), the RBI’s digital currency, will be launched in 2023. “The adoption of a central bank digital money will give the digital economy a significant boost.” “Digital money will also result in a more efficient and cost-effective currency management system,” Sitharaman stated in her Budget address.
The digital rupee will be the digital equivalent of real cash issued by the RBI and, as such, will be sovereign-backed. Cryptocurrencies, on the other hand, are not guaranteed by a government or central bank and may be used as an asset class or a payment method, according to Mihir Gandhi, Partner & Payments Transformation Leader, PwC India.
Some individuals are puzzled by the differences between cryptocurrencies and digital currency. So, are they the same thing? What is the comparison between the two?
“The digital rupee will be distinct from Bitcoin, Ethereum, and other cryptocurrencies in that it will be government-backed.” Second, because the digital rupee has inherent value due to government support, it will be similar to owning a real rupee counterpart,” stated Manoj Dalmia, Founder and Director of Proassetz Exchange. In summary, CBDC is just the digital form of the country’s legal money; it is not a private currency.
Difference between digital rupee and cryptocurrency
“A cryptocurrency is a decentralised digital asset and medium of exchange that uses blockchain technology.” However, it has mostly been problematic owing to its decentralised character, which means that it operates without the intervention of any middleman like banks, financial organisations, or central agencies. As a result, it is impervious to government influence or manipulation. Furthermore, its value is decided by free-market forces and is unrelated to any commodity. As a result, it has no intrinsic value,” remarked Archit Gupta, Founder and CEO of Clear.
In contrast, the Reserve Bank of India’s (RBI) Central Bank Digital Currency (CBDC) would be legal currency in digital form. “It is the same as a fiat money (government-issued currency) and may be traded for existing cash one-for-one,” he continued. When a currency is issued by the country’s Central Bank, it is considered “legal tender” for the purchase of goods and services.
Other Differences
The fundamental distinction between the digital rupee and cryptocurrencies would be that the digital rupee will most likely be issued by the RBI. Cryptocurrencies, on the other hand, are decentralised and cannot be controlled by a single body, according to Vinshu Gupta, Founder and Director of Nonceblox Blockchain Studio.
The digital rupee may become legal cash, but cryptocurrencies will not be considered legal tender in India in the foreseeable future. Cryptocurrency is a privately generated asset that poses a significant danger to the country’s macroeconomic and financial stability, according to RBI Governor Shaktikanta Das on Thursday. People who invest in cryptocurrencies do so at their own risk, and they should be informed that there are no underlying assets, “not even a tulip,” according to the RBI.
“It remains to be seen what the precise technical specifications of the Digital Rupee are. While both may be redeemed for cash, the essential distinction is that, according to the CBDC, the digital rupee may be legal tender, but cryptocurrencies will not be legal currency in India anytime soon.
The connection between the Digital Rupee, Bitcoin, Doge, and Ethereum
Is it just the same as bitcoin in terms of the technology used – Blockchain technology, but it is not the same if we go by Manoj Dalmia’s definition of cryptocurrency? Instead of a decentralised blockchain, the CBDC might be on a private or permissioned blockchain.
In a permissioned blockchain network, banks and other financial institutions that have cooperated with the central bank (in this example, the RBI) would enable transactions for their respective clientele by hosting nodes. “Aside from them, no one else would have a similar position or access to the permissioned blockchain,” stated Sumit Gwalani, Co-Founder of Neobank Fi. The RBI has been vocal in its opposition to private cryptocurrencies, claiming that they might jeopardise financial stability.
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