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Recently, the European Central Bank (ECB) has introduced the digital euro as a central bank digital currency (CBDC) aimed at revolutionizing payment systems.

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  • 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.

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