Back in February, the Reserve Bank of India (RBI) announced its plans to roll out a digital rupee. The project is now live after the central bank digital currency (CBDC) pilot launched on November 1st for the wholesale segment. For now, there are nine local operating banks involved in the pilot, including the State Bank of India, Union Bank of India, Bank of Baroda, ICICI Bank, Yes Bank, and HDFC Bank. While these are all prominent banks in the country, the most notable inclusion is the State Bank of India, the biggest bank in the country with a nearly 25% market share by assets. It is also the 49th largest bank in the world and the largest employer in India with almost 250,000 employees.
What Is A Digital Rupee?
A digital rupee is a central bank digital currency (CBDC). A CBDC is a digital legal tender, and the Reserve Bank of India hopes the digital rupee will boost the economy by settling secondary market transactions. Another objective is to provide the Indian economy with a more efficient system for currency management. The digital rupee will target two segments, wholesale and retail. At the moment, the pilot project is only targeting the wholesale segment. The primary difference between the two is that wholesale CBDCs are used for interbank transactions by financial institutions, and retail CBDCs can be used by households to make payments directly.
Why Is The Launch Important?
The launch of the digital rupee pilot project is significant for many reasons, but it also highlights a change in India’s stance on virtual currencies. For years, India’s central bank has rejected digital currencies like cryptocurrencies, and even suggested a crypto ban in July. That is a stark contrast to other parts of the world, where some governments have already accepted cryptocurrencies. For example, El Salvador is one country that accepts cryptocurrency as a legal tender.
Likewise, dozens of businesses have accepted cryptocurrencies as suitable payment options. Prominent examples include the food and beverage market and the iGaming sector. Chains like KFC and Subway both accept crypto transactions, and online casinos like Metaspins have successfully branded themselves as a crypto casino. That is because this platform only accepts cryptocurrencies for deposits and withdrawals. It also offers crypto-specific bonuses and promotions. Airlines in Norway are also among the different industries that have started accepting cryptocurrency transactions.
However, despite the similarities between digital rupees and cryptocurrencies, they are not the same, and India’s stance on cryptocurrencies appears the same as it was at the start of the year. In fact, Indian finance minister Nirmala Sitharaman stated in February while announcing the pilot project that because of the digital Indian rupee, there will be a 30% crypto tax on all other virtual digital asset transfers.
What’s The Difference Between Digital Rupees and Cryptocurrencies?
A cryptocurrency operates via blockchain technology, and because of this, it is decentralized money. That means cryptocurrency transactions don’t have to be processed or approved by financial institutions like banks. That gives users more control, speed, and security. That is why many people are starting to use cryptocurrency transactions rather than credit transactions since credit card transactions typically involve five parties: the credit card network, the merchant, the acquirer, the issuer, and the cardholder.
However, a CBDC, according to the Reserve Bank of India, is a digital legal tender issued by a central bank. The central bank will govern and manage the digital rupee. Even though the launch of India’s digital rupee project seems like the country has accepted cryptocurrencies, it’s important to remember the digital rupee will not be decentralized. According to Rajagopal Menon, VP at crypto exchange WazirX, this is India’s attempt at targeting crypto fans without associating the country with crypto’s known risks.
India’s launch of a digital rupee is projected to lead to considerable economic developments, such as providing the wholesale and retail segments with a digital legal tender. However, this doesn’t mean India has changed its stance on accepting cryptocurrencies, which is the case in many countries and within several industries. The two have similarities, such as their digital format, but cryptocurrencies are decentralized, and the digital rupee is not. That is because the Reserve Bank of India will have full control over governing and monitoring it.
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