Will eRupee make banks useless? – The New Indian Express

Express press service

The Reserve Bank of India has recently launched a Central Bank Digital Currency (CBDC) pilot project in the wholesale segment. It will soon test the waters for eRupee in the retail segment. Although the CBDC promises financial inclusion, lower transaction cost, faster money transfer, etc., it could also make banks irrelevant on many levels, many experts believe.

CBDC or e-rupee is a form of electronic money, which is currently in the trial phase, issued by the RBI and can be used in contactless transactions. It can be categorized into two types – retail CBDC and wholesale CBDC. While the retail CBDC would be available for general use by everyone, the wholesale CBDC was designed for certain financial institutions and banks.

eRupee: A threat to banks?

The CBDC is legal tender in digital form, so it will have intrinsic value. It is redeemable at par with cash and can be used even if a person does not have a bank account. In the case of UPI, Google pay or Paytm payment, a transfer of money takes place between two bank accounts. The CBDC would be a direct transaction, so it’s like having cash in your bag. Due to this unique quality of CBDC, there are fears that banks will lose their essence in the long run.

The central bank could issue eRupee directly to customers, who in turn could maintain an account with the central bank and transact directly with it without needing to have a commercial bank as an intermediary. Although we are still in our infancy, many believe that the future CBDC could limit the role of banks in the financial sector.

Banks play a vital role in society by providing loans to individuals and businesses at competitive rates. They provide remittance services and help people save and invest their money in different financial instruments like government securities, long-term bonds, etc.

Too early to cancel the role of banks

According to experts, it is premature to comment on the changing role of banks after the official launch of eRupee, as the RBI has yet to give details regarding the technology, naming, account opening, etc.

“The currency is issued by the RBI, but other functions such as payments, deposits and taking credit are carried out by other agencies and banks. So even if a digital currency is launched by the RBI, banks will continue to play their part,” said former Economic Affairs Secretary, Subhash Chandra Garg.

“RBI will never involve the disbursement of credit. Banks will continue to be intermediaries. RBI can maintain the current account but will not make payments that have always been made by banks and payment agencies,” Garg added.

According to Charan Singh, CEO of EGROW Foundation and former Non-Executive Chairman of Punjab & Sind Bank, banks are important intermediary financial institutions, which accept deposits and are involved in credit creation.

“eRupee does not threaten the banking system in any way. Ease of doing business with banks is expected to improve as well as business volume after the introduction of eRupee. Financial inclusion should improve, as should the reach of the banking system. In the financial sector, I visualize improved efficiency and reduced cost of doing business,” Singh said.

Rachit Chawla, the CEO of Finway FSC, also echoed the same observation. He said that ultimately the banks only have the responsibility of moving that digital rupee. Banks will therefore continue to play a vital role.

“It’s a way to make money transfer efficient. That’s all it is. And also a low cost in terms of issuing payments. But banks will play a key role,” he added.

According to experts, digital currency will help improve financial inclusion as there are many places in India, especially in remote areas, where access to physical currency or banks is difficult due to cultural or geographical. In these cases, CBDC will help because the money is easily accessible through a smartphone.

READ ALSO | India set to remain fastest growing major economy, says RBI Governor

“There will be a major impact on just one thing. Digital payments will increase as it will no longer be necessary to have bank accounts. Thus, people will be able to make payments using digital cash. I don’t see any other major impact,” Garg said.

RBI, in its statement on the CBDC pilot project in the wholesale segment, had said that the use of electronic rupee was likely to make the interbank market more efficient. RBI cash settlement would reduce transaction costs by avoiding the need for settlement collateral infrastructure or collateral to mitigate settlement risk.

“Going forward, other wholesale transactions and cross-border payments will be the focus of future pilots, based on lessons learned from this pilot,” the RBI had said.

According to RBI Governor Shaktikanta Das, there is a need to keep pace with the changing times. It is expensive to print, store and deliver paper tickets, it involves the cost of printing, so digital currency will be less expensive. It will be crucial for cross-border transactions and for cross-border payments.

The Reserve Bank of India has recently launched a Central Bank Digital Currency (CBDC) pilot project in the wholesale segment. It will soon test the waters for eRupee in the retail segment. Although the CBDC promises financial inclusion, lower transaction cost, faster money transfer, etc., it could also make banks irrelevant on many levels, many experts believe. CBDC or e-rupee is a form of electronic money, which is currently in the trial phase, issued by the RBI and can be used in contactless transactions. It can be categorized into two types – retail CBDC and wholesale CBDC. While the retail CBDC would be available for general use by everyone, the wholesale CBDC was designed for certain financial institutions and banks. eRupee: A threat to banks? The CBDC is legal tender in digital form, so it will have intrinsic value. It is redeemable at par with cash and can be used even if a person does not have a bank account. In the case of UPI, Google pay or Paytm payment, a transfer of money takes place between two bank accounts. The CBDC would be a direct transaction, so it’s like having cash in your bag. Due to this unique quality of CBDC, there are fears that banks will lose their essence in the long run. The central bank could issue eRupee directly to customers, who in turn could maintain an account with the central bank and transact directly with it without needing to have a commercial bank as an intermediary. Although we are still in our infancy, many believe that the future CBDC could limit the role of banks in the financial sector. Banks play a vital role in society by providing loans to individuals and businesses at competitive rates. They provide remittance services and help people to save and invest their money in different financial instruments like government securities, long-term bonds, etc. Too early to cancel the role of banks According to experts, it is premature to comment on the evolution of the role of banks after the official launch of eRupee, as the RBI has not yet given details on the technology, the name, opening accounts, etc. by other agencies and banks. So even if a digital currency is launched by the RBI, banks will continue to play their part,” said former Economic Affairs Secretary, Subhash Chandra Garg. “RBI will never involve the disbursement of credit. Banks will continue to be intermediaries. RBI can maintain the current account but will not make payments that have always been made by banks and payment agencies,” Garg added. According to Charan Singh, CEO of EGROW Foundation and former Non-Executive Chairman of Punjab & Sind Bank, banks are important intermediary financial institutions, which accept deposits and are involved in credit creation. “eRupee does not threaten the banking system in any way. Ease of doing business with banks is expected to improve as well as business volume after the introduction of eRupee. Financial inclusion should improve, as should the reach of the banking system. In the financial sector, I visualize improved efficiency and reduced cost of doing business,” Singh said. Rachit Chawla, the CEO of Finway FSC, also echoed the same observation. He said that ultimately the banks only have the responsibility of moving that digital rupee. Banks will therefore continue to play a vital role. “It’s a way to make money transfer efficient. That’s all it is. And also a low cost in terms of issuing payments. But banks will play a key role,” he added. According to experts, digital currency will help improve financial inclusion as there are many places in India, especially in remote areas, where access to physical currency or banks is difficult due to cultural or geographical. In these cases, CBDC will help because the money is easily accessible through a smartphone. READ ALSO | India is likely to remain the fastest growing major economy: RBI Governor “There will only be a major impact on one thing. Digital payments will increase as it will no longer be necessary to have bank accounts. Thus, people will be able to make payments using digital cash. I don’t see any other major impact,” Garg said. RBI, in its statement on the CBDC pilot project in the wholesale segment, had said that the use of electronic rupee was likely to make the interbank market more efficient. RBI cash settlement would reduce transaction costs by avoiding the need for settlement collateral infrastructure or collateral to mitigate settlement risk. “Going forward, other wholesale transactions and cross-border payments will be the focus of future pilots, based on lessons learned from this pilot,” the RBI had said. According to RBI Governor Shaktikanta Das, there is a need to keep pace with the changing times. It is expensive to print, store and deliver paper tickets, it involves the cost of printing, so digital currency will be less expensive. It will be crucial for cross-border transactions and for cross-border payments.

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