3 Important questions on Central Bank Digital Currency answered

As Central Bank Digital Currency (CBDC) continues to be tested in India for a pilot use case in the secondary market, there are many questions people have regarding the e-rupee. For this reason, it is essential to have complete clarity about CBDC, its features, usage, registration,  etc. 

Here are some important Central Bank Digital Currency questions and their answers concerning the digital rupee.

What are the key features of CBDC that makes it stand apart ?
 

CBDC key features can be summarised as below in three broad buckets 

·   User experience
 

The aim behind introducing e-rupee is to make payments convenient, just like paying cash to someone. It should involve no or minimal cost to the user, be it while acquiring Central Bank Digital Currency or the technology behind it. You can also easily convert it to paper money or any other monetary form.

·   Technological features
 

As the Reserve Bank of India's digital currency, CBDC will be protected from cyberattacks and other security threats. It will also be insulated from technical snags and outages, natural calamities, and other operational failures and even provide offline payments in poor internet scenarios. The CBDC design is expected to handle a large volume of transactions and scale up the volume as and when required. Available 24/7, all CBDC payments and transfers will be in real-time with instant settlements.

Additionally, the CBDC system would be compatible to interact with existing digital payment systems to make payments smoother. However, it must be interoperable with other nations' CBDCs to facilitate smoother cross-border remittances.

·   Framework 
 

CBDC will be built on a robust legal framework to make it a strong and functional monetary system for every type of end user. The central bank will have detailed rules and guidelines that will dictate digital currency's day-to-day management. 

·  Functional features
 

Based on these key features, CBDC is expected to have the following functional features:

·  It will have all the features of a sovereign currency

·  It will be a liability for the central bank

·  It will be a medium of payment, a store of value, and a legal tender

·  It can be freely converted to cash

·   It will reduce money printing and transaction costs

Who can use the Digital Rupee?
 

Central Bank Digital Currency will be available for use under two categories:

·  CBDC-R
 

It will be available to non-financial end-users, including businesses and the private sector. To that extent, CBDC-R will remain an electronic version of physical cash that you can use for all retail and personal transactions. This makes all users of digitised payment methods potential users of CBDC-R. Unlike these digitised payments, the users will get direct access to the central bank's money, making it a safe option for all payments and settlements. 

Another classification of the digital rupee can be seen in its design structure. Token-based CBDC will be bearer instruments like currency notes. This feature makes this design suitable for CBDC-R users.

As more and more people come into the fold of digital payments, CBDC-R will help the government achieve its goals of financial inclusion and a cashless economy.

·  CBDC-W
 

CBDC-W is expected to offer high efficiency and security in large financial transactions and settlements. It will be available to specific financial institutions and will be used for interbank payments, securities settlements, and related wholesale transactions. Such institutions are likely to prefer CBDC-W as it will reduce the need for collateral as a measure against settlement risk or the need for a settlement guarantee infrastructure.

In account-based CBDC, an intermediary will verify the identity of the account holder. A system will be in place to record the balances and transactions against such account-based CBDC, seemingly suitable for CBDC-W use.

What is the CBDC registration process for IDFC FIRST Bank customers?

If you are an IDFC FIRST Bank customer selected for the CBDC pilot project, the bank will send you an SMS on your registered mobile number or email on your registered email address, which will include a link to the e₹ (Digital Rupee) app.

Click on the link to download, and follow the step-by-step guide below to complete the sign-up/ registration process:

·   Click on start registration after reading and accepting the Terms & Conditions 

·   Verify the SIM card for the registered mobile number

·   Click on Set App PIN and authenticate with your device password (PIN, Face Unlock, or Fingerprint) 

·  Enter your name in the field provided and click on Choose Wallet 

·   Enter your PIN in the first input field. Confirm your PIN in the second input field. Click on the "tick" button on numpad to proceed

·   "Wallet Successfully Created" will be displayed on your screen

·  Next, click on View Wallet Address, select Wallet, and then select "Link IDFC FIRST Bank Account"

·  Click on Continue to allow the app to fetch existing IDFC FIRST Bank accounts linked to the registered mobile number

·  Select the account you would like to connect with the wallet

·  Enter the last 6 digits and the expiry date of your Debit Card 

·  A "Bank Account Linked Successfully" message will appear, indicating that the sign-up/registration process is complete 

·   You can now use e₹ (Digital Rupee) and enjoy CBDC's benefits

In case you want to deregister from the digital wallet, follow the below-mentioned steps:

·  Open the digital wallet and click on "Settings" 

·  Choose "Deregister Wallet"

·   You will receive a PIN to verify the same

·   Once the PIN is entered and submitted, your wallet will be deregistered 

Do note, you will be prompted to unload any unspent balance in the wallet before deregistering after wallet PIN verification.

To sum up

Central Bank Digital Currency is expected to bring great speed in transactions and settlements, reduce cash handling, and improve remittances as well as welfare scheme implementations, apart from many other benefits. Therefore, the probable introduction of CBDC is viewed with great anticipation by all. Once it becomes operational, CBDC can positively impact our economy, including efficient financial inclusion.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.