When you make UPI payment, your bank completes the amount on your behalf at the end of the day.
Digital payments such as UPI are electronic instructions that authorize intermediaries such as banks to facilitate transactions.
Even if they are payment modes ‘without cash’, they involve the transfer of fiat money (the currency issued by the government).
Now imagine a system like UPI where the digital currency issued by the central bank is transacted not a bank balance.
The need for completion between banks disappears and you have the option to pay someone safely, without the risk of third parties.
What if the money itself can be ‘digital’? RBI has called for a complete ban on Crypto because it believes the partial limit will not work.
However, at the same time, consider issuing its own digital currency by utilizing technology that moves Crypto.
“The central bank’s digital currency (CBDC) also has the potential to allow globalization of payment systems that are more real-time and cost-effective.
Time zone differences will no longer be important,” said T rabbi Shankar, Deputy Governor of RBI, in a speech last year.
The RBI defines CBDC as a legal tender issued by the central bank in digital form.
“It’s the same as Fiat’s currency and exchanging oneto-one with fiat currency.
Only the form is different,” Shankar said.
RBI works towards a gradual implementation strategy.
But what is the need for CBDC in India where is the popular cash? According to Shankar, countries with significant cash use seek more efficient publications because CBDC can reduce costs to distribute money.
Cryptocurrency appears in the last decade that promises, anonymously, and efficient transactions.
However, decentralized – which means no authority can regulate it – the virtual currency issued personally threatens state control over money.
The US Fed paper released last week noted that the Foundation CBDCS – a combination of cryptographic and distributed technology (Blockchain) – made by Crypto.
But regardless of the underlying technology, there is no similarity between Crypto and CBDCs, say legal experts.
“People did not get Crypto to transact, they were vested because they believed the assets would greatly appreciate because the value of Fiat’s currency worsened because of its excess supply,” said Manvinder Singh, colleague J.
He added that CBDC is expected to be a payment mode and not Assets like Crypto.
According to a report by the Bank for International Settlements (BIS), around 86% of the world’s central banks are conducting research on CBDCs.
However, CBDC can interfere with the status of quo banks, the Associate Partner IBM Mahesh Nair said.
“The central bank can allow wallets (CBDC) to be made directly with it than with commercial banks.
The final role as a cash custody can be reduced,” Nair said.
Deputy Governor of RBI also recorded the risk of bank credit making capabilities limited.
“It is important to design & implement CBDC in a way that makes CBDC requests, vis to bank deposits, managed,” he said.
The legal framework needs to choose distributed or centralized Ledger, determine the level of anonymity and the role of the bank, and overcome the problem of cybersecurity.
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Why the central bank opposes Crypto but explores its own digital currency
