Digital currency will be the next big money maker. India has taken a step in the right direction by announcing a blockchain-based central bank digital currency (CBDC) in the next fiscal year. This will make the country one of the pioneers in the world, besides giving a great boost to digital India.
s no less than 15 countries, including China, Sweden and South Korea are already in the pilot phase of having a digital currency. Five of them – the Bahamas, Antigua and Barbuda, Saint Lucia and two Caribbean countries – are at an advanced stage. The Bahamas launched their digital currency, the Sand Dollar, in October 2020. Nigeria launched e-Naira in October 2021. China has been on the job since 2014. It became the first major economy to pilot the project in April 2020 .
According to the International Monetary Fund (IMF), no less than 110 countries are in the process of launching a digital currency. Fascination with digital currency is growing rapidly, as according to a survey, only 35 countries were considering CBDC as of May 2020.
Central bank digital currencies (CBDCs) are increasingly seen as the best answer to controlling the proliferation of private or decentralized currencies like cryptocurrencies. As Finance Minister Nirmala Sitharaman explained, decentralized currencies will be virtual digital assets, not money. The CBDC will reflect the exact value of physical currency, unlike private currencies.
The advantages of having a digital currency are numerous. The IMF believes that digital currencies could facilitate financial stability in emerging markets and developing economies. India’s shift to digital currency could enhance its monetary sovereignty and internationalization.
At the micro level, it improves the convenience and efficiency of the retail payment system. Digital currency can ensure greater financial inclusion, better access to financial services, control money laundering, counterfeit checks and stop other illicit activities. Currency management will become transparent, fluid and transparent.
Currency management fees
For the government, the biggest gain will be the drastic reduction in currency management expenses. In a 2017 interview, NITI Aayog CEO Amitabh Kant pointed out that the RBI and other commercial banks spend ₹21,000 crore every year on currency management operations.
According to reports, the standard cost of printing a ₹500 note was ₹2.65 in 2019-2020. The printing of a ₹50 note was ₹1.22. According to RBI’s annual report for 2020, he placed an order for 1,463 crore of ₹500 banknotes and eventually 1,200 crore was printed. This gives an indication of the huge expenses spent on printing alone.
Blockchain has also been proven to be the perfect technology to create digital currency. The advantages inherent in this innovative technology – network, structure, transparency, trust, security, immutability, visibility and traceability, speed, control over data quality and tokenization – will prove to be the advantages of digital currency. Integrated platforms to securely transfer ownership will be essential. Smart contract programmability will facilitate seamless automatic payments. Privacy features, cost savings, and interoperability are added benefits when blockchain is used for digital currencies.
Setting up the necessary technological backbone and integrating the current payment rails with the Blockchain/DLT layer is a complex task and needs to be done carefully by engaging with the best expertise available in India and abroad. ‘foreigner. Micro-focused execution combined with a visionary and strategic approach can ensure that Blockchain technology penetrates all segments of society in different areas, significantly improving governance while mitigating associated risks.
India is one of the largest data-generating economies with the increasing penetration of IOT, smart phones and fast growing smart cities. CBDC and Blockchain/DLT technology has the potential to enable seamless transfer of value between different actors and unlock the value generated. Data sharing can improve quality of life through better e-governance.
Apart from the required legal and legislative framework, the biggest challenge for digital currency will be to bridge the trust gap between the public. As blockchain is a new paradigm, it is imperative that the government educates all concerned about its vast benefits to improve governance. This can go a long way in popularizing blockchain and then instilling confidence in citizens to make digital currency acceptable and accessible, leading to increased transparency and better financial inclusion.
The author is Chief Business Officer – Blockchain (APAC), SecureKloud Technologies
March 09, 2022