India's digital currency will 'finally' replace bank notes, says expert

Payments to merchants can be made using QR codes displayed at merchant locations

The RBI has selected four banks to launch India's digital currency. - File photo
The RBI has selected four banks to launch India's digital currency. - File photo

By H. P. Ranina

Published: Sat 10 Dec 2022, 4:04 PM

Last updated: Sat 10 Dec 2022, 5:48 PM

Question: You had mentioned in the past about the digital rupee being launched by the Reserve Bank of India. Are specific details available in respect of the same?

ANSWER: As in the case of paper currency, the digital rupee would be distributed through banks. Currently, four banks have been selected — State Bank of India, ICICI Bank, IDFC First Bank and Yes Bank. Users must have a digital wallet through a participating bank, which would be stored on their mobile phone or other electronic device. Payments to merchants can be made using QR codes displayed at merchant locations. These four banks are expected to invite merchants and customers who would be part of the pilot project in the coming weeks which will help to build an ecosystem. It is expected that the digital rupee will eventually replace the use of currency notes. The pilot project will be implemented in thirteen cities in India. The digital currency will have denominations like regular currency and will also have images with serial numbers.

Question: India’s trade deficit has been increasing substantially on account of higher volume of imports due to hike in oil and other commodity prices. Will this have a deleterious effect on economic growth in the short term?

ANSWER: It is true that the trade deficit has been increasing due to higher volume and value of imports of oil and commodities. Exports have been rising but at a muted rate on account of recessionary trends in foreign countries. However, the silver lining on the cloud is that foreign exchange remittances to India from Indians working abroad are estimated to grow by 12 per cent during the current fiscal year and likely to touch $100 billion. This estimate has been made by the World Bank’s Migration and Development Division. The $100 billion remittance will be way ahead of what is received by China, Mexico and the Philippines. Mexico receives $60 billion every year by way of remittances from its overseas citizens and China receives $51 billion. The main reason for India achieving the milestone of $100 billion is that the share of remittances from skilled Indians working in the US, UK and Singapore has increased to 36 per cent from 26 per cent. Remittances from the US are the highest as a result of thousands of software engineers and others engaged in high skilled engineering jobs working in the US. Many students who graduated a couple of years ago have now got steady jobs in the developed countries which is reflected in the higher remittances to India in the current fiscal year.

Question: Online shopping has increased dramatically in the last few days and these activities will continue to rise until Christmas this year. While the booming of e-commerce is good for every country, does it carry certain risks like overspending beyond one’s means as well as being exposed to cyber frauds?

ANSWER: While every individual has to decide how much credit risk he wishes to take, cyber security experts are urging caution as cyber criminals are active to take advantage of large volumes of shopping especially on Black Friday and Cyber Monday. Both these days are after the Thanksgiving Day in the US when shops offer huge discounts and kick off their Christmas sales campaign. Global online shopping events have increased drastically. Unfortunately, it has been recorded that there is a 178 per cent increase in malicious web stores globally. According to the e-crime index of an American cyber security company, there has been a high amount of activity of a fraudulent nature with criminals trying to leverage phishing campaigns, opportunistic scams, payment system attacks, and disruptive operations in the form of data theft and ransomware campaigns. Consumers have been advised to be alert when they click on links which end up on different websites. Password/credential thefts are one of the main security concerns. The threats range from impersonation of legitimate websites to the spread of malicious applications.

H.P. Ranina is a practicing lawyer, specializing in tax and exchange management laws of India.

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