More than 100 countries of the world are working on their own digital currency projects

- One of the benefits of a cashless economy is that it will reduce the cost of printing, distributing and cleaning dirty notes for central banks.

India on November 1 joined the group of 50 countries that are in the critical phase of exploring the possibilities of digital currencies, i.e. they have launched such currencies. While some are in the process of developing it or these countries are preparing to start pilot projects. The Reserve Bank of India launched the first pilot project of Central Bank Digital Currency (CBDC) or e-Rupee for wholesale series of secondary market trading in government bonds. On the first day, nine banks used CBDC in the secondary market to raise Rs. Involved in buying and selling bonds worth 275 crores. On that day a total of Rs. 20,865 crore business was done.

RBI is all set to take it further with this pilot test for retail customers. At least 105 countries, representing 95 percent of global gross domestic product (GDP), are currently exploring CBDC opportunities, according to the US Center on International Affairs. About two and a half years ago, as of May 2020 (when the terror of the Covid pandemic swept the world), only 35 countries were considering it, according to the think tank, the Atlantic Council's CBDC tracker. At least 10 countries have already issued fully digital currencies, and China's pilot project is expected to expand in 2023. China has claimed that its first pilot project of digital yuan currency has been successful. It is expanding the scope of pilot projects, particularly for retail payments, with the US and the UK lagging behind the G-7 economies, while 19 of the G20 countries are preparing for CBDCs. Out of 19 countries, 16 countries including South Korea, Japan and Russia have made significant progress in this direction in the last six months. India is also included in this list. At least two internal committees of RBI, India's central bank, have worked on CBDCs and recently issued a concept note.

CBDC will be used for both retail and wholesale payments in India. CBDC is easy to use for bulk payments. Since all interbank transactions are already in digital format and there is no use of cash when one uses CBDC to purchase various types of items, the objective of supplementing cash will be achieved. CBDCs will be part of the payment system, just like credit cards, internet banking and wallets, which are another way to pay for goods and services through wallets. There are many such wallets operating in the country's financial system. CBDC will also be one of them but with a slight difference as it will be issued by the country's central bank and distributed and managed by commercial banks. RBI may follow a centrally controlled database.

Currently, no country in the world is cashless. However, Sweden, Europe today is recognized as the world's leading cashless society and more than 98 percent of its citizens have a debit/credit card. Some studies suggest that its economy may go completely cashless by 2024. According to a World Bank report, more than 98 percent of Norway's citizens have a debit/credit card, and this could give Sweden a tough competition to become Europe's first cashless country. 91 percent of the population of Holland has adopted digital payment and debit cards. Finland can become a completely cashless country by 2030 as its population is around 5.5 million. It lags behind Ireland in terms of card usage. Besides, China, South Korea, UK Australia, the Netherlands and Canada are also on track to become cashless economies. South Korea's economy is more cashless than China, the world's largest e-commerce market, however, it is a much smaller country.

One of the benefits of a cashless economy is that it will reduce the cost of printing, distributing and cleaning dirty notes for central banks. RBI on printing of notes in financial year 2022 Rs. 4,984.8 crore was spent, which is 24 per cent more than in FY2021 (Rs. 4,012.09 crore). However, the supply of notes was low during this period. The central bank has spent Rs. 7,965 crore was spent. Which of the previous year's Rs. 3,421 crore which is 133 percent more.

As for crypto currencies they are not issued by central banks so such currencies are not supported. Furthermore, crypto-currencies cannot be brought under public scrutiny as transactions are done anonymously. This will adversely affect KYC and is fraught with risks of money laundering and funding of terrorist activities. RBI refuses to classify cryptocurrencies as assets. Because it has no scope for future cash flows and its value is always fluctuating due to speculation. This also has no aspect of consumer protection. CBDC will also reduce the cost of remittances outside the country. Because cross-border transactions will become cheaper. According to the World Bank report, India has received the highest amount of outward remittances in 2021. According to a recent report from Reuters, China's digital yuan is definitely included when it comes to the world's largest CBDC pilot trial.

It reportedly allows cross-border payments in digital currencies issued by the central banks of China, Hong Kong, Thailand and the United Arab Emirates. However, experts say international standards will be needed to conduct various CBDC transactions.