India's very own official digital currency is likely to debut by early 2023, which will mirror any of the currently available private company-operated electronic wallets, but with a change that it will be a sovereign-backed facility, a top government source said. Finance Minister Nirmala Sitharaman in her budget speech last week talked about launching a central bank-backed 'digital rupee' soon.
A top government source, who wished not to be identified said, the digital currency issued by the RBI would be numbered in units, just like every fiat currency has an unique number.
"The units issued in digital rupee would be included in the currency in circulation. It would not be very different from fiat currency. It would be more like an electronic form of fiat currency, so in a sense it would be a government-mandated electronic wallet," the source said.
The RBI has indicated that the digital rupee would be ready by the end of next financial year, the source added. The digital rupee blockchain, being developed by the Reserve Bank, would be able to trace all transactions, unlike the current system of mobile wallet offered by private companies.
Explaining further, the source said that using electronic wallet offered by private companies, people currently transfer money to the private company who holds the money on his/her behalf and pays to a merchant when there is any transaction.
"In the case of a digital rupee instead of holding a note you will be holding a digital currency in your phone and it would be with the central bank and from there it would be transferred to any merchant. It is fully backed by the sovereign," the source said.
If the money is transferred to the e-wallet of a private company, then credit risk of that company is also attached to the money besides charges levied by such companies.
"Instead of carrying this wallet, I will carry money on the phone," the source said.
In the 2022-23 Budget, Finance Minister Nirmala Sitharaman had said that introduction of Central Bank Digital Currency (CBDC) will give a big boost to digital economy.
"Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23,” the minister had said.
The exact regulation governing this Central Bank Digital Currency (CBDC) is yet to be finalised. CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies or cryptocurrency that have mushroomed over the last decade. Private virtual currencies do not represent any person's debt or liabilities as there is no issuer.
The government has already said that private cryptocurrencies will never be a legal tender. The RBI has been strongly opposing private cryptocurrencies as they could have implications on national security and financial stability.