The world is changing in ways that just a few years ago would have seemed like the stuff of fantasy, and yet today we’re seeing shifts, developments, and innovations coming over the horizon at seemingly lightning speed. India has been something of a tech powerhouse for many years, and it’s the way that tech is now looking to reshape existing traditional systems that is our focus in this article.
A Brief Overview of India’s Financial Progression
What was once a purely cash economy has become largely card-based in recent years, and now digital payments are moving to the next logical stage. The Reserve Bank of India (RBI) has launched the Digital Rupee to further modernize the domestic economy. Far from being yet another cryptocurrency, the RBI is a fully sovereign, digital form of the rupee that is issued and guaranteed by the country’s central bank.
So, how will the Digital Rupee change the way we make payments, think about payments, and move ever closer to a cash-light economy?
Understanding the Digital Rupee
We need to be clear from the outset that Central Bank Digital Currencies, such as the Digital Rupee, are in no way cryptocurrencies, even though they may be digital in nature. They are a valid form of 100% legal tender, but one that exists purely in an electronic form. The idea is that CBDCs will go about bridging the gap between cash and digital wallets, taking the economy as a whole to a new place in the process.
CBDCs are highly stable, tightly regulated, and centrally issued with plenty of input from some of the most skilled economists in the world. At the time of writing, the RBI is actively running a series of detailed pilot programs that cover all of the retail and wholesale test cases they want to work through. Their end goal is to significantly enhance the security, efficiency, and overall traceability throughout the new-look financial system.
Why India Is Embracing CBDCs
Reducing the dependence on physical cash has long been seen as one of the keys to curbing black money and increasing tax revenue across the country. In addition, the administration feels that the enhanced payment speeds and a greater sense of financial inclusion will be key to taking the economy to the next level.
The government is also looking at how the Digital Rupee can reduce the cost of financial transactions for businesses, giving them a vital competitive advantage. This would then form a central part of the overarching Digital India vision that is designed to take the economy in a new, more robust direction.
Economic Implications of CBDC
The most interesting thing about the rise of CBDCs is that they have the potential to change the fundamental relationship between banks and consumers. Staying with the example of the Digital Rupee, the initial signs are that, by simplifying payments and enhancing the underlying settlement systems, there will be far less intermediary reliance. The goal is for this to make cross-border payments and accessibility key drivers of a new-look Indian economy. That said, there is also much work still to be done when it comes to understanding if CBDCs will impact commercial bank deposits.
Future Outlook for Businesses
The hope is that companies and businesses across the country will reap the rewards that come with fast, cheap transactions. There is also the prospect of easier, more streamlined payment integration when it comes to things like tax reporting systems and the ability of a business to issue rapid digital invoices to clients and customers.
The other side of the coin is where we see things like the cost of adoption and the need for higher levels of cybersecurity to make the Digital Rupee operationally viable at scale. This may be a challenge for small and medium enterprises, not to mention startups, who may need to invest time, human resources, and capital in ensuring that they are regulatory compliant. For the move to be successful across the business landscape, there will need to be clear regulatory support and a high degree of technical guidance on offer, especially during the early stages.
The Global CBDC Landscape
In the interests of both balance and perspective, we need to be clear that India is by no means alone when it comes to looking at digital currency in this way. China has already launched its e-CNY pilot, with early results already starting to be fed back into the development cycle. The European Central Bank’s Digital Euro research arm is also making strides throughout the EU, while the Bahamas’ Sand Dollar has already become one of the first properly functional CBDCs.
India’s own foray into the world of state-backed digital currencies is a prime example of how innovation can be used to balance financial stability. It puts the country right near the front of the queue when it comes to gauging progress, but it is by no means out there on its own. This would allow India to benefit by being one of the first, but also to be able to learn lessons from the progress of other nations and potentially develop in a more streamlined, cost-effective fashion as a result.
Lessons From Existing Digital Economies
We can also gain additional perspective by taking a look at some of the existing digital economies that have already built on their prior infrastructure. While there are several good examples out there, a natural choice is the world of online gambling because of the way that speed, trust, and transparency need to be at the center of everything from the very beginning.
Digital Payments Beyond Finance: Online Gambling
Tightly regulated online gambling platforms and entertainment sites have long tested real-time digital transactions and identity verification protocols. While India restricts online gambling at present, there are numerous examples from other countries and regions that show how digital currencies can be securely and safely used for instant settlements, streamlined cross-border payments, and fully traceable transactions at scale.
Just as a blockchain-based platform has the ability to deliver full transaction visibility and compliance at every stage, the Digital Rupee aims to do the same for the wider world of mainstream finance. We can gain an understanding of what the shift could look like by studying the expert opinions at CryptoSpinners, and other similar resources. What we have found by doing so is that we can move beyond thinking of gambling as an activity to be endorsed or promoted and instead use it as a test case for how tech modernization can shift an industry.
What Does CBDC Mean For Regular People?
We’ve focused largely on businesses and the economy as a whole, so it’s important to touch on how regular people will feel the impact of new innovations like the Digital Rupee. We can reasonably expect them to be able to enjoy instant payments by using RBI-linked wallets. This would then result in a reduced need for cash that people carry around in their pockets, leading to higher levels of security and better financial security due to enhanced traceability.
Possible pilot features that are being discussed include offline transfer options and UPI integration for greater ease of use. One thing is for sure: it will be fascinating to see where CBDC takes the economy next.
The New Path Ahead
India’s digital currency journey is only at the very beginning, but the potential is there for all to see. Over time, we can expect trials to hone the systems and drive innovation and evolution, as well as regulations to continually evolve to keep pace with the tech shifts. In a relatively short period of time, we may come to see the Digital Rupee as the key bridge between daily life and the fintech world as India embraces a truly global future that everyone can access.
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