“Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23.” FM Nirmala Sitharaman announced during her budget 2022 speech. Apart from RBI, Central Banks of Singapore, Thailand, Sweden, England, Canada, Venezuela, Uruguay, and a few other countries have been working towards implementing respective Central-bank-backed digital currencies.
It was a big leap in human civilisation to move away from the barter system towards a centralised monetary system, which has started with Gold and other kinds of coins had moved on to gold-backed legal tenders, and finally evolved into a Fiat currency. Rather than equivalent gold holding, a Fiat currency is backed by full faith and credit of the issuing government of the Reserve Bank or Central Bank of the country. Transactions in these Fiat currencies happen in physical notes and coins form or via a bank account, for on paper or digital transactions. A CBDC is in the token form of Rupee. It is an electronic record of the country’s official currency and can prove to be crucial towards goals of financial inclusion. Transactions of a CBDC do not necessarily need one to have a bank account.
Financial inclusion is critical for strengthening the abilities of the poor to tap all opportunities to come out of poverty, and to a vast majority in India, the middle class, to fruitfully utilise nurturing ecosystem of entrepreneurship and skill development in their chosen domain. The zero balance requirement concept for bank accounts opened under Prime Minister Jan Dhan Yojna has been critical in bringing banking services to millions of unbanked Indians. RBI-Digital-Currency will be truly a shot in the arm to the efforts of bringing the unbanked into the financial system. As FM noted, the added benefit of the CBDC would be simplifying the implementation of monetary and fiscal policies and a more efficient and cheaper currency management system.
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