Modi Government Looking To Bring Digital Rupee In A Phased Manner

"CBDCs are likely to be in the arsenal of every central bank going forward. Setting this up will require careful calibration and a nuanced approach in implementation," Shankar said.

Interest in cryptocurrency at all time

The remark comes at a time when interest in cryptocurrency is at an all-time high. Not only has crypto trading found favor from investors worldwide but also gained interest from industry leaders with amazon reportedly looking to hire a crypto product development manager. Bitcoin surged 14 percent as soon as the news broke out on Monday. Another report highlighted how crypto investors have gained 25000 percent on a certain digital token.  The trillion-dollar industry is seen as the most game-changing disruption for the global economy in the last decade. Naturally, it has gained traction in the last few years with governments considering the pros and cons of crypto trading while contemplating the launch of its own version of digital rupee which is different from cryptocurrency.

Sovereign digital rupee for investor security

Although  Crypto crypto presents the possibility of ominous returns, the decentralized trading and volatility of the crypto market have cast a shadow on its viability. The security concerns and usage of digital tokens in money laundering and terror financing made matters worse. In fact, RBI’s stance has always remained that of caution when it came to private cryptocurrencies. However, the government had been working on launching its own version of the digital rupee on the sidelines. A digital rupee is different from a cryptocurrency as it is backed by some form of a physical asset which creates much-needed security in the process.

The idea here is to reap the benefits of the crypto wave while eliminating the risks posed by private currencies.

‘Welcome move but needs clarity

Welcoming the move, Sajai Singh, Partner, J Sagar Associates says, "RBI is moving in the right direction with regard to digital currencies. Any RBI-backed digital currency will come with a promise of less volatility and greater security for the bearer of the same. This will be very different from cryptocurrencies, like Bitcoin and Ethereum, which are rather popular but carry innumerable risks. Also, RBI’s support of a digital currency will ensure its financial stability. It will be similar to say a potential digital Euro and digital Yuan.”

Although the government’s efforts have gained momentum towards making India’s version of CBDC a reality, how it will go about scaling a robust digital infrastructure and integrating the digital rupee with the existing UPI mechanism remains to be seen.