Budget 2023-24 Expectation: Will FM provide further clarity, direction on plans for digital rupee?

With Union Budget approaching, the talk of securing and ensuring ease of transaction in Central Bank Digital Currencies (CBDCs) is further gaining ground.

Central Bank Digital Currencies (CBDCs) are the talk of the town and would soon see the light of day. With pilots in the Digital Rupee already running in the wholesale (e₹-W) as well as the retail digital Rupee (e₹-R), there is a growing expectation that the upcoming Union Budget will provide further clarity and direction on the government’s plans for the digital rupee.

Digital currency could be a gamechanger for financial system

The increased interest in CBDCs is also a result of the shift in global budget focus towards digitalization and technology in order to be more efficient and cost-effective. The advent of a digital currency (DC) would signify a transformative shift towards a cashless economy in India, and could potentially revolutionize the country’s financial infrastructure and could be a potential game changer for the Indian financial system.

The ongoing economic uncertainty and the potential for monetary policy challenges in the wake of the COVID-19 pandemic have led many governments and central banks to explore the possibility of issuing CBDCs as a means of ensuring financial stability and promoting economic growth.

The potential benefits of a CBDC, underpinned by blockchain technology and backed by the government’s full faith and credit, cannot be ignored. It could provide individuals with a secure and convenient mode of digital transactions, and be a more stable and reliable form of currency.

One of the most significant advantages of CBDCs is their potential to enhance efficiency. By reducing transaction costs and making it easier for individuals, particularly those in underserved areas or without access to traditional banking services, to access financial services, CBDCs have the potential to increase financial inclusion. Additionally, CBDCs could also augment the stability of the financial system by providing a digital alternative to physical cash.

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The implementation of a CBDC in India could have a significant impact on the financial infrastructure. Specifically, it could lead to cost savings for banks by reducing physical branches and ATMs, and increasing convenience and accessibility through integrating digital platforms. Additionally, India’s launch of a CBDC would position the nation as a pioneer in digital innovation and technology, potentially attracting foreign investment and stimulating economic growth.

Challenges to overcome before launching CBDC

It is important to note that before a full-scale launch, numerous challenges must be overcome including the foremost one of security. The Reserve Bank of India (RBI) must evaluate the results of the pilot and address the pressing issues.

One crucial aspect of the pilot launch is user experience. The RBI has emphasized that the digital rupee must be easy for the average person to use and that a retail user should be able to operate it through a simple mobile app. This would allow anyone with a smartphone and internet access to make transactions using the digital rupee easily and securely.

Digital rupee highly vulnerable to cyber attacks

As with any new technology, potential risks and challenges must be addressed. One major threat is the potential for cyber exploitation and fraud. As transactions are digital, the digital rupee is highly vulnerable to hacking and cyber-attacks. Hackers may try to steal DCs from individuals or exchanges, or disrupt the underlying infrastructure. This can lead to financial losses for individuals and damage to the overall credibility of the DC.

RASP tech to protect CBDC mobile app

To mitigate these risks, it is essential to protect the CBDC mobile app by embedding it with a RASP-based mobile app security solution. RASP (Runtime Application Self-Protection) technology can detect and prevent attacks, ensuring the DC is protected from potential cyber threats.

Creating consumer awareness regarding safe and secure digital transactions is important. Users will need to be careful and adequately equipped to transact with proper safeguards such as strong passwords, and other multi-factor authentications.

Increasing user awareness of CBDCs will also be crucial to ensure their successful adoption and integration. This includes educating the public on the features and benefits of CBDCs, such as increased security, privacy, and accessibility.

Providing clear guidelines and regulations for the use of CBDCs, as well as ensuring their compatibility with existing financial infrastructure, will also be important. Furthermore, fostering collaboration and communication between central banks, financial institutions, and other stakeholders will be critical to ensuring a smooth and efficient rollout of CBDCs.

The success of the CBDC depends on its security and the trust of users. The safety and security steps taken in by the central bank and the government will go a long way to ensure that DC is widely accepted.

The writer is Founder & CEO, Protectt.ai—an integrated and innovative mobile security platform to give Indians freedom from mobile frauds & cyber threats. He tweets @manishmimani Views expressed are personal

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