The New Future of Payment and Money

The RBI has launched its first pilot test program to evaluate and enhance the operation of the currency as part of its efforts to control inflation. On November 1st, the Reserve Bank of India introduced its first digital rupee for the wholesale market.

The Reserve Bank of India claims that this will boost India’s digital economy by improving the effectiveness of the payment system and reducing money laundering. Government securities will be settled using digital currency. On the road to the adoption of cryptocurrency in India, this will pave a vital stone

On November 1, 2022, the Reserve Bank of India (RBI) will launch the Digital Rupee pilot program in the wholesale sector. The regulator has selected nine banks to participate in the pilot, including the State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank, and HSBC.

In a statement released on October 31, 2022, the RBI stated, “The use case for this pilot involves settlement of secondary market transactions in government securities.”

As per the central bank “The inter-bank market is anticipated to become more effective with the use of e-W. By eliminating the need for infrastructure to provide settlement guarantees or for collateral to decrease settlement risk, settlement in central bank money would cut transaction costs.”

CBDC is a digital currency that is distributed by a sovereign nation’s central bank. It is, by definition, freely convertible against the actual money that the same central bank issues. Similar to using physical money, utilising CBDCs does not require a bank account. CBDCs will, however, have an indefinite life because they cannot be destroyed or lost in any physical form, which is a key distinction between them and actual money. It will be controlled using a digital ledger that might or might not support blockchain technology.

Two Types of CBDC:

1. CBDC Wholesale (CBDC-W)

2. CBDC Retail (CBDC-R)

While CBDC-R would be utilized as an electronic form of cash for retail transactions, the wholesale variety would be used for interbank settlements and other wholesale operations. It is anticipated that CBDC-W will lower transaction costs and increase the effectiveness of the interbank markets. A second pilot program for CBDC-R is anticipated to commence before the end of the month. The RBI trial program that starts on November 1 is just for CBDC-W. Currently, a number of other central banks are looking at the viability of implementing CBDCs.

The sovereign counterpart of existing cryptocurrencies or crypto assets, such as bitcoin and ethereum, is a CBDC. CBDCs will be issued and managed by a nation’s central bank, as opposed to bitcoin and ethereum, which are mined and created in a similar manner and are completely decentralized.

The emphasis on decentralization in cryptocurrencies is another significant distinction between the two. They do away with the requirement for a centralized body to coordinate transactions. They also serve as a means of investment.

A CBDC, on the other hand, is still wholly centralized despite utilizing the security and transparency that blockchains offer. With the assistance of other outside organizations, a central bank supervises and facilitates the transactions. And unlike cryptocurrencies, CBDCs solely serve as a medium of exchange.

In a nutshell, CBDCs are government-backed kinds of money, whereas cryptocurrencies are private forms of money.

They use various sorts of blockchains, for instance, which is another difference. While cryptocurrencies use a permissionless open network, CBDCs use a private permissioned blockchain network.

When they conduct transactions on the network, users who utilize cryptocurrencies remain anonymous. CBDCs, on the other hand, will be linked to a person’s current bank account, which will include their personal data in it.

CBDCs are managed by a central authority, making network scalability simpler. Any changes to the network must be approved by all nodes in a cryptocurrency network. When the network has to scale but the nodes disagree on how to proceed, this could provide a problem.



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