How crypto’s blockchain will help in launching digital rupee

In the Union Budget 2022, presented a few weeks ago, Finance Minister Nirmala Sitharaman proposed to introduce a central bank digital currency (CBDC) in the coming financial year.  The Reserve Bank of India will launch the CBDC that will be backed by blockchain technology. in the upcoming financial year. 

What is a digital currency or CBDC?

CBDC or digital currency is a legal tender issued by a central bank in a digital form.

What is Blockchain?

Blockchain is a digitally distributed decentralised ledger system that holds information in a chain of blocks.

How will blockchain technology help in launching the digital rupee?

A blockchain-based digital currency will allow RBI to control it at the same time protecting the privacy of the CBDC holder. Privacy is retained on the user end, security features are advanced compared to normal payment systems, said Manoj Dalmia, Founder and Director, Proassetz Exchange

Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. “The digital rupee will use blockchain technology to come live and the network will be used for facilitating transactions,” said Vinshu Gupta, Founder and Director, Nonceblox Blockchain Studio.

Sumit Gwalani, Co-Founder, Neobank Fi said that RBI could explore a centralised system of issuing its CBDC.

“Blockchain is a distributed ledger technology that the RBI can use to launch the digital rupee. However, it implies that the central bank will not have complete control over the currency since blockchain is decentralised in nature. The RBI could explore a centralised or permissioned system of issuing its CBDC. But this also brings up questions of privacy and surveillance as users and usage of such currency can be tracked by authorities, unless the system allows for anonymity or pseudoanonymity,” said Sumit Gwalani.

"We will need to evaluate available technologies on multiple criteria like accessibility, privacy, scalability, performance, resiliency, finality etc," said Mihir Gandhi, Partner & Payments Transformation Leader, PwC India.

A decision needs to be taken based on the model selected if there should be a centralised technology or decentralised technology, he added.