[DigitalOne]

This article on Investopedia gives more perspective on Central Bank Digital Currency (CBDC). Many governments are pursuing this idea, and India is one of the front runners already piloting it.

As I understand, the CBDC concept is similar to prepaid gift cards (e.g. Amazon), sodexho etc. Once the wallet is loaded (using bank transfer/UPI/Credit card):

- it is delinked with the initial source.
- balance earns no interest
- tracking happens only within the specific ecosystem, and not by banks/RBI.

Though initially the e₹-R wallets are piloted by banks, it may in the future be provided by any Fin apps as long as they adhere to the API specs.

In e₹-R, there is no 'settlement' process between banks for each transaction (similar to physical cash transactions). So technically if the specs provide for wallet app direct communication using NFC/Bluetooth, there need not be internet connectivity to complete a transaction. Once the initial load happens into your phone wallet app, all the credit/debits happen within the wallet app.

Is there a strong use case for this? For the governments world over, Yes.

- The government can do direct e₹-R transfer to the wallets of beneficiaries instead of to the bank accounts. Despite the governments best efforts there are still many unbanked citizens. Moreover, as per reports, lots of Jan Dhan accounts are idle.

- I expect 2000 ₹ currency note to get "demonetized" to a only e₹-R mode soon.

- Implementing e₹-R with expiry date becomes feasible. Government can put an expiry date on each e₹-R 'note' and any 'renewal' can be subjected to approvalthreshold limits (very similar to what happened in 2016 demonetization).

- Control on what e₹-R can be spent on. Just like Sodexho balance can be used only on food, government may restrict spend categories, especially for the amounts govt transfers to the beneficiaries. For e.g. cash transfers from the govt can be restricted only to buy food and not alcohol.

Is there a retail use case now? No, for the already banked/internet savvy.

Yes, for the unbanked less-privileged citizens. But for that adoption to happen, the apps have to be really simple:
- All regional languages support from day 1.
- should look like a physical wallet with rupee notes pictures. (this will be a really interesting UX design problem).
- Voice support.
- NFC/Bluetooth transaction for zero connectivity use cases.

Overall, an interesting idea whose time has come.

[A M]

Physical money cannot be phased out completely. Not everyone can afford to own a phone. There are still a huge number of people in our country who are BPL and even suffer with extreme poverty. Phasing out physical currency will lead to massive financial exclusion of this population. I wold say, physical money can never be completely phased out.

[PreludeSH]

Physical money cannot be phased out. But for higher denominations we can think of using CBDC. Again 2000 rupees is not a high number when it comes to actual value unlike 2000 dollars !

For the present pilot, have they created new tokens which are independent of printed money that exists today ? What happens when you want to convert physical money to these tokens ? Will the physical money still exist ?

[vamsi.kona]

Originally Posted by DigitalOne

- Control on what e₹-R can be spent on. Just like Sodexho balance can be used only on food, government may restrict spend categories, especially for the amounts govt transfers to the beneficiaries. For e.g. cash transfers from the govt can be restricted only to buy food and not alcohol.

From whatever I have read, the best possible impact in the short run seems to be this area. Already with DB cash transfers there has been a reduction in pilferage of funds. Now with a targeted spending restriction there will be further scope in reduction of corruption in government schemes. Like a subsidy on Fertilizer can only be spent at a fertilizer shop/dealer. Of course people will still find a way around to do corruption but it will be a bit more difficult and probably leave a trail.

[Samarth 619]

We live in a world of vested interests. Whatever happens on a national or global level is influenced by the men in power. Its a fact.

This E-rupee won't be any exception. Anything using our internet framework in not private now, unless its P2P, and encrypted using your own private key. Tell me e rupee will work like this, it won't, right?

And privacy has multiple meanings now, you not only have to convince the public they're not being tracked but you also have to ensure that people are not tracking each other using past transaction details.

Recently, I made a video on Vedic Mathematics on my PC, and shared it on Whatsapp, on a phone on which not even my google ID was logged in, and google apps were disabled in entirety. Yet, I got a youtube suggestion regarding Vedic Mathematics on my logged in Windows 7 PC which doesn't even have chrome. Only in firefox my google id was logged in.
How did Google know I was working on this? Is it that everything from my mobile phone is sent to my ID anyways, because phone number is the same as before? Is it because the file names are shared to Google automatically?
I'm cent per cent sure some illegal privacy invasion happened on Google's end, the phone didn't have any account except whatsapp.

Nothing is private anymore, except our cash transactions.
And cash shouldn't and must never be phased out.

[exhaustpipe]

I do not think the government is planning to completely phase out paper currency. There are many reasons that won't let it happen. These reasons will also impact its acceptability:

1. Cost and availability of a smart phone. Eg: Do they expect a 10 year old kid buying food from the school canteen to have a phone?

2. Mobile network reliability. For many people like me, getting enough signal strength to make a regular call is still a challenge. I stay at a good location in Delhi.

3. Foreign exchange. Right now I can get USD and other foreign currencies in exchange of INRs at international airports. If my INRs are digital only, an exchange agent in a foreign land would need to be on-boarded by the government to be part of their e-Rupee system. Don't see it happening.

Also, don't thieves successfully steal block chain based Crypto currencies all the time! According to CBS News, hackers have stolen more than $3 billion in cryptocurrency so far this year. I would feel more exposed with my money on an App digitally then in my physical wallet and bank account.

I still think its a good step in the right direction. But e-Rupee will always remain as one of the payment options and not the only.

[alpha1]

So, wait let me get this straight - one can theoretically use eRupee without opening a bank account. By using some kind of digital wallet service that runs on a mobile phone (maybe even dumb phone using SMS public-private key authentications) or a device that need not be connected till it exhausts its balance (magnetic/RFID card?). But with proliferation of 5G in future, such use case might be far and few.

I might be a person who doesn't trust the banks (thanks @anandhsub) or may have religious reasons (like sharia) for not indulging in interest bearing instruments/agencies, hence may adopt this.

From Govt's point of view what I see is that if all physical currency gets transformed into eCurrency it would eliminate the problems currently associated with counterfeit currency!
Plus, as @DigitalOne says, it can come with default expiry or perhaps later induced expiry (based on Govt's need of the hour).

However, my belief is still that it will not result in any improvement for me who is salaried, uses bank accounts, transfer using IMPS/NEFT/RTGS.



And this can definitely NOT be in response to crypto currency which records all transactions on a block chain and removes govt control, wonder which news site was promoting that view ...

[PreludeSH]

UPI is already very easy and is the biggest competitor to CBDC. Only change is with UPI, its bank to bank while CBDC will be peer to peer. There will also be no tracking since there is no intermediary. So not sure it can reduce illegal transfer or laundering unless the wallets will report certain transactions to RBI.

[Bhargav7]

Originally Posted by DigitalOne

As I understand, the CBDC concept is similar to prepaid gift cards (e.g. Amazon), sodexho etc. Once the wallet is loaded (using bank transfer/UPI/Credit card):

- it is delinked with the initial source.
- balance earns no interest
- tracking happens only within the specific ecosystem, and not by banks/RBI.

This pretty much sounds like a Paytm wallet to me, albeit operated by the Central Bank.

Probably the underlying technology may be different, end use is same. I fail to understand how this would help people who do not have bank accounts - because you need a bank account to do an initial deposit in the wallet. And for people who already have a bank account, how is this any different from IMPS, UPI and other wallets?

Most of the unbanked Indians are from rural India who are not tech savvy. For them, opening a bank account is still a lot more easier than a mobile based e-wallet. Atleast in the bank, you have the staff who can assist you in depositing and withdrawing cash, printing passbooks, etc.

[Huzi]

IMHO

What I have understood so far as a layman:
1) This is like my wallet, cash is present, I will be able to see the different denominations of currency in the e-wallet.

2)Govt is trying to save some money by printing notes.

3)Hey counterfeiters - What out man! Find a new scam.

4)Govt will silently be able to track spending, Hey tax evaders, be prepared, demonetisation 2.0 might be around the corner.

5)Big Big leap for us as a country, more options to pay, and thereby you can keep your money in different baskets for safety purposes.

6) Sethji now, will not need to carry 4 lacs cash in his tight silk trousers. He can carry whatever he wishes on his e-wallet. Though I think there will be restrictions.

7) brilliant move, will have hiccups, as experienced post demonetisation/ GST implementation.

8)black money is going to be very difficult to hide.

Regards

[Turbohead]

Originally Posted by am1m

If that is indeed the case, then can't the same be achieved by just phasing out physical currency gradually and ramping up digital payments? Those are also tracked on each payment app without needing block chain or a digital rupee. What am I missing here?

You are right when you say you don't see the point of this and that it does not technically affect how we make transactions.

Considering this is blockchain, everything under the hood is completely different (The following explanation maybe erroneous, experts can feel free to correct me):

Currently, the transactions we make are bank to bank. Therefore, the transaction history is limited to only the participating banks. The regulators will have to access the bank/s statements/ databases to understand the quantity and beneficiaries of a person's transactions.

However, with block chain technology, if you have a wallet with a bank, the transactions will be noted down in a common ledger/database which is immutable(cannot be changed) by nature. Therefore all transactions are noted for a given token(or currency note with given serial number). This will make it easier to prevent counterfeit money and will most likely leave trails for persons involved in crime etc.

Honestly, the claim that there is privacy involved is BS. Perhaps the users will not be able to identify who made the previous transactions but this will be open and plain to the govt.

All this is useless if certain transactions are not noted, paper money is still in circulation and the existing banking framework also exists. It's honestly way too early to bring this technology in unless they want to test this concept considering the fact that internet connection and a device for making transactions is not available with everyone.

The major disadvantage is that we are giving way too much power to very few people.

[Bhargav7]

RBI Governer Shaktikanta Das explains the difference between UPI and CBDC -

https://youtu.be/GT-fNOX_A94

Again, this sounds exactly like Paytm, Phonepe, and other digital wallets innovated many years ago. Is it useful for small payments - Yes. Is it a game changer for all those people who do not have bank accounts in rural India? A big No.

We have to still wait and see how good the implementation of this is. Again, to run this e-wallet, there will be a lot of costs involved. Who will take the costs? RBI? Or will it be passed on to the users as an annual fee or a usage fee?

[vamsi.kona]

Originally Posted by Bhargav7

RBI Governer Shaktikanta Das explains the difference between UPI and CBDC -

https://Youtu.be/GT-fNOX_A94

Is it a game changer for all those people who do not have bank accounts in rural India? A big No.

We have to still wait and see how good the implementation of this is. Again, to run this e-wallet, there will be a lot of costs involved. Who will take the costs? RBI? Or will it be passed on to the users as an annual fee or a usage fee?

I don't think the costs will be passed on. As with UPI, the savings from printing currency notes should be enough to compensate the operators.

With regards to it being a gamechanger or not for people still not in the banking fold, the priority of government to open accounts under Jan Dhan yojana was to enable DBT (Direct Benefits Transfer). The advantage of the e-rupee over normal DBT is that e-rupee can be restricted to only certain uses. Say, government can restrict the amount thus transferred to a wallet under fertilizer subsidy to be only used for fertilizer purchase. With normal DBT while the recipient would receive the amount there is no guarantee that they will use it for the same. With this they can do that. So in that way it can be a gamechanger if not on reach basis.

And given this is from one wallet to other without bank involved, NFC and Bluetooth technologies can be used for sending or receiving payments, thereby reducing, if not eliminate, the requirement of net connectivity probably. I am a non tech person so just guessing wildly.


Of course, this is still being run on a pilot basis, so the challenges as well as use cases will evolve.

[Gansan]

Originally Posted by vamsi.kona

Say, government can restrict the amount thus transferred to a wallet under fertilizer subsidy to be only used for fertilizer purchase. With normal DBT while the recipient would receive the amount there is no guarantee that they will use it for the same. With this they can do that. So in that way it can be a gamechanger if not on reach basis.

Fertilizer subsidy will be paid after the farmer buys fertilizer, not before. Moreover I don't think the scheme of direct subsidy payment to farmers has started. AFAIK subdsidy is still being paid to fertlizer companies, who have to sell at the price fixed by the government.

[vamsi.kona]

Originally Posted by Gansan

Fertilizer subsidy will be paid after the farmer buys fertilizer, not before. Moreover I don't think the scheme of direct subsidy payment to farmers has started. AFAIK subdsidy is still being paid to fertlizer companies, who have to sell at the price fixed by the government.

I don't have much idea about this. Just used a hypothetical example.