Alok Puranik
Each currency note has a different identity and a different number. How this will be managed in the digital rupee is a different question. The big question is, to whom were the digital rupees issued, who has how many, how and how much this information will be collected? Would anyone like to provide digitally how many digital rupees I have?
The Reserve Bank is continuously making announcements to the effect that it is working on a digital currency. Recently, as the debate surrounding the trend of cryptocurrencies intensified, proposals began to emerge to the effect that the Reserve Bank should introduce its own digital currency as soon as possible. The question is, what will be the digital currency of the Reserve Bank, that is, the digital rupee of the Reserve Bank!
The regulator of the official currency of India is the Reserve Bank of India. The notes bear the promise of the Reserve Bank to pay a certain amount to the holder. The opportunity to fulfill this promise has never come in the history that people have lined up outside the Reserve Bank’s office that the Reserve Bank should fulfill its promise. The Reserve Bank promised, it is so long assumed that it is the official currency.
That is, the issuer of official currency in India is only one organization – the Reserve Bank of India. Till now the Reserve Bank has been issuing this currency only in physical form. But the currency issued in digital form will not be issued physically, that is, it will be in digital mode only. It cannot be touched, and neither will its notes. But it will have full legal recognition. In technical language, if the Reserve Bank issues a digital rupee, then it will be a legal tender. Legal tender means such currency, which cannot be refused by anyone in India.
For example, there may be such a trend that a shopkeeper gives taffy chocolates if there is no reggari, but this is not a legal tender. That is, a customer cannot be compelled to accept chocolate taffy instead of money. But the rupee issued by the Reserve Bank is a legal tender, so it has to be accepted in the payment of any goods or services. It will be used in transactions like normal currency, but it can be used in digital form, not in physical form. It can be kept in a digital wallet and from there payments and online purchases will be possible. In this way the digital rupee can be replaced by the paper note. So overall this digital rupee will be a digital version of a paper note in a way.
The discussion of the Reserve Bank’s digital rupee has intensified only after the influx of cryptocurrencies. In a section, it is believed that the introduction of the digital rupee will reduce the attractiveness of cryptocurrencies. But the truth is that both cryptocurrency and digital rupee are different. There may be some similarities between the two, but fundamentally there is a lot of difference between the two. The Reserve Bank’s digital rupee cannot be substituted for cryptocurrencies. The digital rupee would then be the rupee issued by the Reserve Bank of India, to be issued as the official currency. But the accounting of cryptocurrencies is very opaque. For example, no one has a scientific analysis of why bitcoin prices go up and down.
Just like the last responsibility of the Indian Rupee rests with the Reserve Bank, in such a way, the responsibility of cryptocurrency lies with no one. So overall cryptocurrency is kind of a betting product. Speculation refers to investments based on speculation and uncertainty, which have no scientific or legal basis. Reserve Bank Governor Shaktikanta Das warned against investing in cryptocurrencies, saying that the basis behind this investment is not even tulips. Why did the RBI governor mention this tulip? Tulips refer to uncertain investments with high risk, associated with imprudence and frenzy. Tulip is the name of a flower.
In the European country of Holland, there was a madness about seventeenth century tulips. Everyone left everything and started thinking of doing tulip business. From the middle class to the poor, a golden future was seen in the tulip. People bought tulips either by mortgage or by selling their fields, houses and shops. The cost of a tulip petal was more than the cost of a house at that time.
It was just frenzy. The governor of the Reserve Bank meant that there was at least the basis of tulips behind tulip investments, but nothing behind investing in cryptocurrencies. Not even tulips. That is, any irrational investment is associated with tulip frenzy. So it is clear that the Reserve Bank’s digital rupee will be the official currency and its prices will not fluctuate like the prices of cryptocurrencies. The one commonality between cryptocurrencies and the Reserve Bank’s digital rupee is that both will be digital in nature. But the chances of cryptocurrency will ever be recognized as a legal currency or as a legal tender in India is negligible.
The Reserve Bank is aware that it is not easy to bring digital currency and run it smoothly. There are many technical and practical difficulties. Each currency note has a different identity and a different number. How this will be managed in the digital rupee is a different question. The big question is, to whom were the digital rupees issued, who has how many, how and how much will this information be collected? Would anyone like to provide digitally how many digital rupees I have?
Cash transactions have their place in the Indian economy. During the demonetisation of 2016 and then in the Corona era, people have increased the habits of online payment, but cash has retained its place. Overall, the question will arise that when people are turning to cash transactions and online payments without the digital rupee of the Reserve Bank, then what will be the effect of the arrival of the digital rupee of the Reserve Bank.