What do you mean by Digital Rupee ? In this context, explain the working and progress of India’s Central Bank Digital Currency (CBDC).

e] -> [Block Creation] -> [Verification by other Nodes] -> [Becomes Part of Block chain] -> [cannot be Altered]

Features of CBDC:

1. Will act as perfect substitute of paper money.
2. Immence potential due to rising significance tech users (83.34 crore active smartphone users).
3. Decreased signiorage for RBI -> low cost to generate.

Boosting the Digital Economy:

1. Will lower the transaction cost involved in paper currency [seamless and timeless transactions].
2. Will boost digital payments.
   • Eg. 50% travel transaction are now online [NPCI].
3. Convenient to store and carry.
   • No risk of theft / mutilation.
4. Provide safer Alternative to the volatile crypto currency like Bitcoins.
5. Will enable creating innovative products based on CBDC [Just like UPI - app integrated payments].
6. Free from credit and liquidity risk - hence faster adoption.

Challenges:

1. Digital divide and lack of trust of people on digital currencies.
2. Difficult to attract investors from crypto market to CBDC (since no scope of price fluctuation gains).
3. Not completely environment friendly - mining of currency is energy intensive process.

Way forward:

• Rolling-out on experiment basis.
• Collab with private players e.g. Myntra to allow CBDC on Apps for payment.
• Learn from international experience e.g. China.
• Proper assessment of cyber security risk and vulnerabilities.