After the massive success of the Unified Payments Interface (UPI), the government specifically plans to take the next step in Digitization. On 1st December, the government launched its own CDBC(Central bank Digital Currency), also called Digital Rupee (e-RUPI). According to RBI, 92% of the world currency is in digital formats and the rest 8% is in physical format. The hard cash we carry is in the physical format. This digital and physical payment works on the principle of Master Ledger and Mini Ledger. This simply means Master Ledger(In our case RBI) and Mini ledger are different banks like SBI, HDFC, and Axis Bank. Mini Ledger banks are being controlled by Master Ledger. RBI track or Monitor the day-to-day transactions.
What is CDBC or Digital Rupee?
According to the Indian version, Digital Rupee is not a new currency but an electronic version of the Rupee. Moreover, the CDBC record will be maintained in the same order as the Centrally Controlled Database or Distributed Ledger technology. It is said that CDBC is a technology based on Blockchain Technology. Let’s break three keywords into simple words:
- Blockchain- In simple words, it is a technology that helps us to build a network to push data. For examples of Blockchain technology are Bitcoin and Ethereum.
- Centralized- Some party or bank have their own ledger and RBI have its own Ledger. In a Centralised system one controls and tally with all the Ledger. In India, RBI is a centralized system.
- Distributed- Meanwhile, in Distributed Ledger one ledger is not controlled by anyone. In this, it is controlled and maintained by Smart Contracts. Smart Contracts is a self-executing code. If one change is made then it will be reflected in all.
Which one is better UPI vs CBDC?
In UPI, RBI issued some rupees to your bank. You may have to pay some rupees to merchants who have a different bank. In that case just like the ledger principle, to repeat the same way. In UPI, the involvement of commercial banks is there. Furthermore, in CDBC, the involvement of Commercial banks will be less, also it will help in direct benefit transfer. Eventually, CDBC lends more power to the government and it will not good for the general public.