Sansad TV Perspective: RBI Digital Currency

In the series Sansad TV Perspective, we bring you an analysis of the discussion featured on the insightful programme ‘Perspective’ on Sansad TV, on various important topics affecting India and also the world. This analysis will help you immensely for the IAS exam, especially the mains exam, where a well-rounded understanding of topics is a prerequisite for writing answers that fetch good marks.

In this article, we feature the discussion on the topic: RBI Digital Currency.

Context: The RBI has come out with a proposal to launch digital currency for limited use cases.

Host: Teena Jha

Participants: 

• Dr Aruna Sharma, Former Member, Digitisation Committee, RBI
• Mr. Ramesh Singh, Former Executive Director, DENA bank 
• Dr. Anil Kumar, Prof Delhi School of Economics. 

Introduction: Digital currency is a form of virtual currency. In other words, it would be a digital form of paper currency to be known as Central Bank Digital Currency (CBDC). It is to be launched on a pilot basis in some sectors to assess its functioning before launching it at a pan-India level. It will be backed by the blockchain, which is considered the safest and the most reliable form of technology.

Advantages of digital currency:

• It will replace paper currency in a phased manner. Thus, it would reduce the total cost that the government has to incur in printing the paper notes, storing them in a vault, and transporting them from one place to another.  
• It is easier to trace digital currency in comparison to paper currency. Thus, the possibility of generating black money and keeping hold of cash in order to cover illicit income can be reduced to a minimum level.
• CBDC will offer additional payment avenues to the users. Along with this, the cost of transactions associated with the CBDC will be very low and thus help in saving lots of money.
• The introduction of CBDC will further enhance the idea of financial inclusion. It will cater to the needs of the people in remote areas of the country.
• It will allow the user to use the CBDC with or without an internet facility. This facility would help those populations who are untouched or under-touched by the internet facility.
• It makes financial services more accessible to unbanked and underbanked areas, thus, enabling people to become a part of banking services.
• It will allow the government to make use of the money saved for other expenditures that are essential for the country.
• With the digitisation of banking facilities, there would be less requirement for people to physically visit the bank. Therefore, the cost of operation for the bank would reduce and its profitability would increase.

 Challenges in the process of implementation:

• Digital currency works well with the internet, but in remote areas of the country, there is limited connectivity. Thus, the idea of financial inclusion needs to make much effort in order to reach the people.
• Incidences of cybercrime have been rising at the fastest pace in the country. People in India have very limited digital literacy. Under these circumstances, people would become more susceptible to cybercrime. At the same time, the illiterate and poor would be more susceptible towards such risk.
• The privacy of the citizens would also suffer since the hackers would divulge the data of the people and bring those data into the public sphere. It would amount to a clear violation of the Right to Privacy.
• Banking infrastructure and its employees need to be upgraded and upskilled respectively in order to meet the demands of the present context. It will require the government to make huge efforts to ramp up the infrastructure in order to meet the needs of the present situation.
• Digital currency would also face a huge challenge from cryptocurrency, which is emerging at a faster pace and being accepted as a fiat currency by some countries. 

Conclusion: Digital currency is an inevitable need of the future. It offers multiple advantages to the government as well as the users. But, the success of the digital currency would depend upon creating a strong foundation in the form of a cybersecurity mechanism, digital literacy, and awareness among the people. If these foundational needs of the system are achieved, then the transformation to the era of digital currency would be smooth. 

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