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Digitalization seems to have redefined and shaped global economies, especially in the post-covid era. As the world is becoming more and more hyperconnected, banks around the world are experimenting with the concept of digital currency. And India too seems to be smitten by the Central Bank Digital Currency (CBDC) trend.
In a recent turn of events, Nirmala Sitharaman, the Minister of Finance proposed, in her 2022-23 budget speech, that the Reserve Bank of India (RBI) use blockchain technology to introduce e-rupee (e₹), India’s version of the Central Bank Digital Currency.
Financial experts believe that the introduction of e₹, the digital rupee, can help boost the already growing digital economy in India.
Why Does India Need Digital Rupee?
Many countries have already implemented CBDCs. 10 countries, including Nigeria and the Bahamas, have adopted Central Bank Digital Currency (CBDC) into their economies, while around 17 more are already in the pilot stage and are in the process of getting ready for a launch.
The RBI launched the first-ever trial batch of the digital rupee (e₹) for the wholesale sector on November 1st, 2022. This was unquestionably a historic moment for Indian economy. 9 of India’s most prestigious banks, including the State Bank of India, HDFC, ICICI Bank, and HSBC, have agreed to partake in this experimental project. These banks will settle interbank transactions using the digital rupee. On the first day of the launch of the digital rupee, 48 transactions totaling around Rs. 275 crores were carried out by the 9 participating banks.
The retail version of the digital rupee is all set to go live next month is select locations and a wide variety of companies are eagerly waiting for its launch anticipating that it would boost productivity, democratize access to finance, and lower the cost of cash in the nation.
The increasing popularity of cryptocurrencies that operate in a decentralized manner has long been one of the most pressing concerns for central banks all over the world. But unlike cryptocurrencies, Indian digital currency, e₹, =will be governed directly by the RBI, making it an authentic, centralized and widely accepted type of currency.
Experts believe that the introduction of the digital currency will give momentum to India’s digital revolution. The e-rupee is anticipated to grow the Fintech industry and add layers of protection to online transactions. The digital rupee, which is supported by blockchain technology, will streamline corporate transactions, and strengthen India’s expanding digital payments infrastructure.
Will the Indian Fintech Industry Benefit from the Digital Rupee?
The transition to the digital rupee occurs at a time of significant disruption in the Fintech industry. With the very start of the corona pandemic, there has been an increased demand for quicker and more customized payment experiences.
Because of this, Indian Fintech companies have had great success in raising money aggressively during the previous two years, which has caused their overall valuations to soar.
With cash usage declining worldwide, the introduction of the digital rupee will be a game-changer for the Fintech sector. The digital rupee will increase prospects for growing Fintech businesses by minimizing reliance on physical cash in addition to facilitating quicker payments. By eliminating the inconveniences associated with handling, printing, and keeping cash, it improves convenience while also strengthening the security and resilience of the overall payments system.
Impact of the Digital Rupee on Fintech Firms
In addition to easing the hassles associated with managing cash, the digital rupee is anticipated to improve efficiency in the financial services industry. The following are 5 significant changes that the digital rupee will bring about in the Fintech sector:
1. The RBI is backing the digital rupee, reducing the possibility of volatility.
2. Unlike actual notes, which are vulnerable to deterioration while in circulation, digital currency is also not susceptible to the danger of theft, fraud, or damage.
3. The digital rupee will simplify international payments. The usage of the digital rupee will make cross-border payments speedier by drastically lowering the time and expense associated with doing so.
4. The digital rupee will secure internet transactions. It is more resistant to cyberattacks and dangers since it is supported by blockchain technology.
5. The digital rupee will bring in more transparency and efficiency in the financial services industry.
In The End!
The introduction of the digital rupee is nothing less than a historic event since it will fundamentally alter how financial transactions are conducted in the country. The introduction of the e-rupee is anticipated to gain early acceptability and commercialization, especially in the post-covid era, when there is a greater emphasis on digital payments. The digital tokens allow for quicker disbursements and increase the security of digital payments and online money transfers, so the Fintech industry has a lot to look forward to. Players in the fintech industry need to be well-prepared for this new asset class because the digital rupee is sure to significantly affect client value propositions in the times of come.
