Well-placed sources in the government have told Outlook Business that what Nirmala Sitharaman proposed in the Union Budget 2022-23 will be a wallet that will have legal guarantee and no merchant will have the choice to refuse payment through it
If you thought the government-backed digital currency will be a sovereign-backed replacement to the bitcoins of the world, you might end up disappointed. The Reserve Bank of India-backed digital currency that was announced by finance minister Nirmala Sitharaman in the Union Budget 2022-23 will be more like a digital wallet with the RBI guarantee.
“It is closer to a digital wallet than a bitcoin, Ethereum or all of that. When we say it is a digital asset, the two are not interchangeably used. It is not something that will trade or appreciate in value or fall in value. It will be like Paytm, for example. Instead of putting Rs 10,000 in Paytm and using it to pay various merchants, you will be holding Rs 10,000 worth of RBI digital currency in your phone,” a senior government official, who did not wish to be quoted, said.
The RBI-backed digital currency will work like any other digital wallet. A holder of those currencies can use it in a shop to purchase what they want. The differentiation though is that a shopkeeper could choose not to accept payments through a private wallet, but nobody will be able to refuse the RBI-backed coins, the official explained.
“Here is the implication: if the digital currency is made a legal tender, a merchant cannot say that they will not accept this. If you want to buy chocolate, say, in a Kirana shop, you can use this digital currency. Now, some shopkeepers say that ‘I do not use Paytm and only accept PhonePe’, say. But, here, they cannot say that they do not accept this [RBI currency],” the official said.
Unlike other wallets, since the government digital currency will be based on blockchain, it will be traceable. “The [concerned] government department will be able to trace every movement of that currency to see where that currency is travelling and how,” the official said.
The official also said that it is not clear yet if the consumer will show interest in such an offering, given that the market already has other established players. “I am not sure honestly. If you ask me, I really do not think that there will be much of it. Only in companies like Paytm, there is a small risk that if it goes bust, my money goes. Here that will not be the case. But, I am not sure whether that alone is enough to create consumer demand. It is definitely not a substitute for Bitcoin, Ethereum or any other cryptocurrency, or NFTs. It will not be a value-changing asset,” the official said.
Finance minister Nirmala Sitharaman had said in the budget speech that the digital rupee, the name of the Central Bank Digital Currency (CBDC) in India, will be introduced using blockchain and other technologies. She added that the RBI will issue it in 2022-23. “Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” she had said.
The CBDC refers to the digital form of a country’s fiat currency, which is issued by the central bank of the country. Though it is in digital form, it can be exchanged with the fiat currency of the country. The CBDC is seen as a liability of the central bank.