Why in news?  At G20 TechSprint Finale 2023, Reserve Bank of India Governor mooted the idea that CBDCs can make efficient cross border payments

Highlights:

What is CBDC?

• CBDC is the 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.
• The digital fiat currency or CBDC can be transacted using wallets backed by blockchain.

How will the digital retail rupee work?

• User will be able to transact with e rupee through a digital wallet offered by the participating bank and store it in the mobile devices
• Transaction can be person to person or person to merchant through QR code

Why do we need digital rupee?

• To reduce the operational cost in managing physical cash and bring efficiency in payment system
• To boost innovation in cross border payments
• To address the concern over money laundering , terror financing ,tax evasion with private cryptocurrencies like bitcoin ,Ether etc

What is the difference between the RBI’s e-rupee/CBDC vs Crypto Currency And UPI?

• CBDC is backed by a central bank or a sovereign nation, while the Crypto currency is considered like private money that is not backed by any sovereign entity.
• There is not much difference in terms of payments as in both CBDC and crypto, payment settlement happens instantaneously.
• In UPI transactions ,the settlement of transactions happens on the backend between two banks

What is fiat currency ?

• Fiat currency is a type of currency that is not backed by a commodity, such as gold or silver.
• It is typically designated by the issuing government to be legal tender
• Ex: Dollar, Rupees and Euros etc