Difference Between India’s Digital Currency And Existing Cryptocurrencies | EXPLAINED

New Delhi: The Reserve Bank of India (RBI) successfully completed the pilot launch of of Digital Rupee (e₹) in the Wholesale Segment (e₹-W) yesterday, November 1. This pilot will be used for settlement of secondary market transactions in government securities. Nine banks –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 have been identified for participation in the pilot. Digital Rupee for Retail Segment (e₹-R) will also be launched soon, according to the central bank.Also Read – RBI To Roll Out First Pilot Of Digital Rupee Today: Key Points Explained

WHAT’s RBI’s DIGITAL RUPEE?

Central Bank Digital Currency (CBDC) is issued by the central bank of a country (in India, the RBI). It is just like the paper currency, but in electronic form. CBDC is a sovereign currency that would appear as liability (currency in circulation) on the central bank’s balance sheet. CBDCs should be exchangeable at par with cash. Also Read – Loans Towards EVs, Green Hydrogen To Come Under Priority Sector Lending? Here’s What Banks Told RBI

CBDC Vs Cryptocurrency

Going by RBI’s own definition, “a CBDC is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.” Also Read – Digital Economy Gets Big Boost: RBI To Commence Pilot Launch of E-Rupee For Specific Use Cases Soon

“Unlike cryptocurrencies, a CBDC isn’t a commodity or claims on commodities or digital assets. Cryptocurrencies have no issuer. They are not money (certainly not currency) as the word has come to be understood historically,” said RBI.

Essentially, the CBDC is a digital avatar of a paper currency, issued by a country’s central bank and that should be exchangeable with the paper currency. CBDC will be considered as a legal tender in a country because it’s being issued by the country’s own central bank. The central bank will be responsible for governing and managing the asset.

On the other hand, cryptocurrencies like Bitcoin, Ethereum of Dogecoin are NOT considered equivalent to legal tenders. The RBI and the government of India have time and again reiterated that cryptocurrencies are not legal in India. These private cryptocurrencies have a lot of risks associated with them. Apart from the market volatility, there have been several repots of people losing money in the crypto world due to phishing and hacking.