Digital Currency: Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2022-23 announced that the Digital Rupee - a Central Bank Digital Currency (CBDC) will be introduced 2022-23 onwards to boost the Indian economy.

Who will launch the CBDC?

• The CBDC will be launched by RBI from the upcoming financial year.
• The Digital Currency will use block chain and other technologies which are to be issued by the Reserve Bank of India starting 2022-23.

• What is the need for CBDC?
• The introduction of CBDC will give a big boost to digital economy.
• Digital currency will also lead to a more efficient and cheaper currency management system.
• Furthermore, CBDC cannot be torn or physically damaged or lost.
• The lifeline of a digital form of currency will thus be indefinite as compared to notes.
• In addition, CBDC will also save the government the cost of printing the notes and with digital currencies, it would be accessed more in the remote areas.

Who will regulate the CBDC?

Like cryptocurrencies, the CBDC will also be regulated by a central body, mitigating the volatility risk associated with other such digital currencies like Bitcoin.

Goal:

• The main Goal is to provide users with convenience and security of digital as well as the regulated, reserve-backed circulation of the traditional banking system.
• The RBI has on several occasions flagged concerns of money laundering, terror financing, tax evasion, etc with private cryptocurrencies like Bitcoin, Ether, etc and had planned to announce its own CBDC.
• Smt. Sitharaman had said that in recent years, digital banking, digital payments and fintech innovations have grown at a rapid pace in the country and that the Government is continuously encouraging these sectors to ensure that the benefits of digital banking reach every nook and corner of the country in a consumer-friendly manner."

What is a CBDC?

• The CBCD is a legal tender issued by a central bank and it is the digital form of the Indian rupee.
• It is similar to a fiat currency issued in paper and is interchangeable with any other fiat currency.
• Instead of printing paper currency or minting coins, the central bank issues electronic tokens.
• This token value is backed by the full faith and credit of the government.

Other Announcements:

Digital Banking Units (DBUs):

Taking forward this agenda, and to mark 75 years of our independence, the Finance Minister announced that it is proposed to set up 75 Digital Banking Units (DBUs) in 75 districts of the country by Scheduled Commercial Banks.

Anytime- Anywhere Post Office Savings:

• 100 per cent of 1.5 lakh post offices will come on the core banking system enabling financial inclusion and access to accounts through net banking, mobile banking, ATMs, and also provide online transfer of funds between post office accounts and bank accounts.
• This will be helpful, especially for farmers and senior citizens in rural areas, enabling interoperability and financial inclusion.

Digital Payment

• The financial support for digital payment ecosystem announced in the previous Budget will continue in 2022-23.
• This will encourage further adoption of digital payments. There will also be a focus to promote use of payment platforms that are economical and user friendly.

The adoption of CBDC has been justified for the following reasons:-

• Central banks, faced with dwindling usage of paper currency, seek to popularize a more acceptable electronic form of currency (like Sweden);
• Jurisdictions with significant physical cash usage seeking to make issuance more efficient (like Denmark, Germany, or Japan or even the US);
• Central banks seek to meet the public’s need for digital currencies, manifested in the increasing use of private virtual currencies, and thereby avoid the more damaging consequences of such private currencies.”

Source: PIB and Outlook