Context:
Recently, the European Central Bank (ECB) has introduced the digital euro as a central bank digital currency (CBDC) aimed at revolutionizing payment systems.
More on News:
- The ECB has presented this central bank’s digital currency, the digital euro, as a new, better alternative for citizens: free, anonymous, and reliable.
- This currency is meant to be the government’s alternative to existing cashless options such as credit cards, apps, cryptocurrencies, and bank transfers.
About Digital Euro
- A digital euro is a digital form of cash, issued by the central bank and available to everyone in the euro area.
- It would act as an electronic equivalent to cash and it would complement banknotes and coins.
- People can use the digital euro to pay directly from a digital wallet, a smartphone or a computer, without involving a bank or payment gateway.
- It will also be used for micropayments viz. a micropayment is an online financial transaction to access or purchase products/services, often involving minimal amounts of money. It would be convertible one-to-one with banknotes.
Need for Digital Euro
- Currently, there is no European digital payment option that covers the entire euro area, with 13 out of 20 countries reliant on international card schemes for card payments.
- A digital euro would be a European electronic means of payment accessible and accepted in all euro area countries.
India’s Digital Currency Scenario
- Digital Rupee, also called E-Rupee, denominated as e₹ or eINR, is a tokenised digital version of the Indian Rupee issued and regulated by the RBI (under the RBI Act of 1934).
- It is built using blockchain distributed-ledger technology.
- The Digital Rupee (Indian e-currency) is an example of a central bank digital currency (CBDC).
- CBDC refers to the digital form of a country’s official currency, issued and controlled by its central bank. It functions similarly to physical notes and coins; the only difference is that it exists in digital form.
The RBI regulates two types of digital currencies:
- Wholesale CBDC (e₹-W): This is aimed at improving the efficiency of interbank settlements and payments between banks and financial institutions.
- Retail CBDC (e₹-R): This is aimed at the general public for retail transactions, similar to how people use physical currency today.