Prime Minister Narendra Modi launched a new digital payment solution, e-RUPI, on Monday. ‘The e-RUPI voucher is a symbol of how India is progressing by connecting people’s lives with technology’, the PM noted in the inauguration speech.
The word ‘digital’ and ‘currency’ have people speculating that the new e-RUPI is the government’s version of cryptocurrency.
Market experts have firmly discarded any comparison of e-RUPI with cryptocurrencies. However, they welcomed the move as the first step towards the government accepting ‘digital currencies’.
What is e-RUPI?
The e-RUPI is a cashless digital payment mode that enables a ‘leak-proof’ transfer of the government’s monetary benefits to the citizens. The main objective of e-RUPI is to provide financial support in healthcare, education, and welfare even to those unbanked.
Under this new payment system, eligible beneficiaries will get a prepaid electronic voucher similar to a digital currency. The e-RUPI is paid for by the government and is used to pass on welfare subsidies.
Why is e-RUPI not a Cryptocurrency?
For one, cryptocurrencies are based on blockchain technology. Though e-RUPI enables end-to-end digital transactions without physical intermediaries, the underlying database for recording transactions is not blockchain.
Unlike cryptocurrencies that are decentralized and not controlled by the government, the e-RUPI vouchers are merely prepaid fiat money issued by the government in a digital form. At the most, experts opine that e-RUPI could come close to a Central Bank Digital Currency or CBDC.
What is a CBDC?
Central Bank Digital Currency, in simple words, is essentially the digital version of traditional fiat currency. For instance, the RBI is mulling on introducing a CBDC – ‘digital Rupee’ – in a phased manner.
According to a recent survey, nearly 80% of all the Central Banks in the world are looking to implement CBDC. However, analysing the pilot projects undertaken, it is evident that most CBDCs run counter to the underlying principles of cryptocurrencies.
While CDBC is issued and controlled by the Central Banks, cryptocurrencies are decentralized. Unlike cryptos, CBDC may or may not rely on blockchain technology. More importantly, CBDC will not deploy cryptography to secure the privacy of its users.
The advantage of CBDC, however, lies in holding a similar ‘digital’ framework as that of cryptocurrencies. Theoretically, CBDC makes cross-border transactions seamless and instantaneous while reducing costs drastically.
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