The RBI’s CBDC, also known as the digital rupee, is a new way to utilise the money that isn’t much different from the banknotes that are now in circulation. The only difference is that the digital rupee is anticipated to be used more frequently and traded digitally. The CDBC is promoted as being more secure than private cryptocurrencies because it is an electronic version of sovereign cash.

Any currency that is only offered in electronic form is considered digital currency. Many countries’ financial systems already heavily rely on electronic forms of currency. However, digital currency can only be exchanged virtually and never leaves a computer network.

As more and more of our daily activities are undertaken online and as the international economy becomes more digital, digital assets have grown in significance. The following points highlight the importance of digital assets:

In comparison to traditional asset classes, digital assets may be easily stored, transferred, and sold on digital platforms, which can speed up operations and save costs.

Financial services are now more readily available to consumers in nations with potentially limited access to traditional banking services because of digital assets like cryptocurrencies that enable peer-to-peer transactions without the need for middlemen.

The majority of the time, digital assets are decentralised, or not under the jurisdiction of a single organisation like a government or central bank. This can promote financial independence while lowering the possibility of meddling or censorship.

Secure digital wallets, as opposed to conventional banking systems, can provide high security against theft and fraud when used to store digital assets.

The development and usage of digital assets are spurring new business models, services, and products in the financial sector that might potentially improve the quality of life for people all over the world.

Benefits of the digital rupee

• Convenience and accessibility: A digital rupee will make financial services more easily accessible to both individuals and companies by enabling instantaneous, secure transactions around-the-clock. Additionally, it can lessen the need for actual currency, boosting financial inclusion for those who might not have access to conventional banking services.
• Transparency and security: The use of a digital rupee could enable the safe recording of transactions on a digital ledger that would be both transparent and impenetrable. This might boost financial system accountability and lower the danger of fraud.
• Cost-effectiveness: Due to the lack of middlemen and the lower expenses associated with producing and distributing real cash, digital transactions are often less expensive than traditional bank transactions. This might lower the expenses associated with carrying out financial transactions for both people and corporations.

It’s crucial to remember that establishing a digital rupee could present certain difficulties, including ensuring that it is secure and reliable, resolving privacy concerns, and making sure that everyone can use it, particularly those in rural areas with little internet connection. For a digital rupee to be successful, these problems must be thoroughly explored and solved.India Stack: A Unique Digital Asset Solution

India Stack is a set of APIs (Application Programming Interfaces) that provides a unified platform for Indian citizens and businesses to access a range of financial and non-financial services.

India Stack has the potential to transform the delivery of financial and non-financial services in India, increasing financial inclusion and improving the lives of millions of people. The platform has already been used to build a range of services, including digital wallets, e-signatures, and digital locker services, and there is ongoing innovation and development in this area.

• To modernise retail payments and settlements, the National Payments Corporation of India took control of the ATM network in 2009. The foundation of the Unique Identification Authority of India, or UIDAI, which represents the biggest technological advance in India’s digital history, came after this turning point.
• Based on the 12-digit digital identification known as AADHAR, which is validated by fingerprints and retina scans, the UIDAI built a biometric database of its population.
• By 2022, UIDAI had authenticated over a billion AADHARs.
• The government’s bold financial development initiative, Pradhan Mantri Jan Dhan Yojana, with its goal of giving every household in India a bank account, was made possible thanks to the implementation of the Aadhaar programme.
• These ground-breaking innovations are part of the ambitious establishment of a digital infrastructure to address problems in a variety of fields, such as governance, businesses, start-ups, and many others. The development of presence-less, paperless, and cashless systems is one of the essential elements of this digital infrastructure.

Exporting the India Stack Model

The India Stack concept, sometimes referred to as India’s digital infrastructure, is a collection of technology-based services that facilitate digital transactions and provide access to essential services including identity verification, healthcare, and financial services. The model was created and put into practice in India over the past 10 years, and it has drawn a lot of interest because of its potential to boost entrepreneurship and innovation while promoting financial inclusion and streamlining government services.

The India Stack model has a lot of room to grow and spread, both within India and beyond. The Indian government has been actively encouraging the use of digital technology, and the India Stack has been included in a variety of government initiatives, including the Aadhaar unique identity programme and the Jan Dhan Yojana financial inclusion initiative. The India Stack now has a wider audience and a greater influence, but there is still a lot of space for expansion.

The success of the India Stack is already having an international impact. With a wide range of internet and mobile phone solutions now integrated into the India Stack platforms, several customer-facing international enterprises are using it to access the country’s market. Through the purchase of Indian e-commerce juggernaut Flipkart, Walmart now owns PhonePe, the market leader in UPI transactions. As of May 2021, PhonePe had more than 300 million registered users and processed $390 billion in payments annually. Amazon Pay, Google Pay, and WhatsApp are further significant international players. Sundar Pichai, CEO of Alphabet, intends to adapt the lessons learned from Google Pay’s experience in India to international markets. Google has also written to the US Federal Reserve to urge it to adopt the Indian payments model as the nation’s rapid payment system.

The India Stack concept may have a huge effect on the world economy in terms of exports. The need for digital infrastructure solutions is increasing, especially in emerging nations. The India Stack offers a tested architecture that may be scaled and modified to fit the demands of other nations. Encouraging financial inclusion, streamlining government operations, and encouraging entrepreneurship and innovation could spur economic growth and development.

The India Stack model is still relatively new and there are several factors that will influence its impact on the world economy. One important factor is its potential for a successful export, as well as its ability to adapt to different cultural and regulatory contexts.

In addition to these challenges, there are also concerns about cybersecurity and data privacy. As with any digital platform, the India Stack is vulnerable to various types of attacks, including double-spending scams that exploit protocol issues or application software vulnerabilities, as well as cyber-attacks and individual hacking attempts.

To address these concerns, it is important for countries that adopt the India Stack model to prioritize cybersecurity and data privacy. This may include investing in robust security measures, such as encryption and multi-factor authentication, and implementing policies and regulations that protect user data and prevent fraud.

Overall, while there are certainly challenges associated with the India Stack model, it has the potential to be a powerful tool for enabling digital transactions and expanding financial inclusion. As more countries adopt and adopt this model, it will be important to remain vigilant and proactive in addressing potential risks and challenges.

What can other countries do to replicate the success of the Indian stack?

India’s success with the Indian Stack is a result of a combination of factors, including strong government leadership, a robust digital infrastructure, and a focus on creating an inclusive digital economy. Other countries can learn from India’s experience and take steps to replicate its success in the following ways:

• Build a strong digital infrastructure: To replicate India’s success, countries need to invest in building a strong digital infrastructure that enables seamless transactions and data sharing. This includes investing in digital identity systems, payment gateways, and data privacy and security frameworks.
• Foster public-private partnerships: India’s success with the Indian Stack is largely due to the strong partnerships that were formed between the government and private sector stakeholders. Other countries can learn from this model and work to foster similar partnerships that bring together government, businesses, and other stakeholders to create a shared digital ecosystem.
• Focus on creating an inclusive digital economy: India’s approach to digital inclusion was a key factor in the success of the Indian Stack. Other countries can learn from this and focus on creating an inclusive digital economy that provides access to digital services and products for all citizens, regardless of income level or geography.
• Embrace innovation: India’s success with the Indian Stack was driven by a willingness to embrace innovation and experiment with new technologies and approaches. Other countries can learn from this and create an environment that encourages and supports innovation in the digital economy.
• Prioritize data privacy and security: As digital economies grow, it is essential to prioritize data privacy and security to ensure that citizens’ personal information is protected. Other countries can learn from India’s approach and prioritize data privacy and security in their digital infrastructure.

The India Stack model has the potential to promote economic growth and development, but implementing it successfully in other nations will demand a large amount of work and money as well as careful consideration of the particular difficulties and circumstances of each nation.

Conclusion

The digital rupee, also known as a central bank digital currency (CBDC), is a digital version of a country’s currency that is issued and regulated by its central bank. The digital rupee has the potential to be a game-changer because it offers several advantages over traditional paper currency and other digital payment methods, such as increased efficiency, reduced costs, and improved financial inclusion.

The India Stack, which is a set of technology-based services that enable digital transactions, is well-positioned to support the development and adoption of a digital rupee. The infrastructure and services provided by the India Stack, such as the Aadhaar unique identity program and the UPI unified payment system, can be leveraged to support the issuance and use of a digital rupee.

However, it is important to note that the development and adoption of a digital rupee is a complex process that requires significant technical expertise, regulatory support, and infrastructure development. This is why other countries may not be able to replicate the success of the India Stack in this area quickly.

Overall, while the development and adoption of a digital rupee have the potential to change the game for the financial sector, it is not a straightforward process, and other countries can be encouraged to replicate the success of the India Stack in this area.

(The author is Co-founder of CredR. He is a serial technology entrepreneur and an IIT-Bombay Alumnus)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)