Digital Rupee to save costs of printing, distributing and storing cash

For every Rs 100 note, the cost works out to be about Rs 15-17 rupee (15-17% on each tender) in its four-year life cycle, according to a market estimate. The cycle entails a chain of printing new notes and soiled notes coming back to RBI via commercial banks.

Given that higher denomination notes are being pulled out and more of smaller denominations are printed, the cost savings from a digital currency could be significant.

“CBDC (Central Bank digital Currency) will be a legal tender, being a revamped version of the physical currency that will eventually reduce the cost of currency management,” said Ram Rastogi, a member of Fin-Tech Association for Consumer Empowerment (FACE).

Rastogi had earlier worked with the National Payments Corporation of India.

Finance Minister Nirmala Sitharaman last week announced that the RBI would soon issue a CBDC. The digital rupee is likely to see the light of the day in the new fiscal year.

“If the RBI takes a centralised unit approach where a customer has to open an account to use digital rupee, net cost savings should be significant given that any blockchain-backed system increases electricity charges,” Rastogi said.

Last financial year that ended on March 31, the central bank printed about 4.19 lakh additional notes year-on-year as the cash in circulation rose by that much.

Going by the latest available figures, currency management costs could be reduced by hundreds of crores of rupees if there is no further increase in printing legal tenders.

“A digital rupee does not legitimize bitcoin trades in India,” said Madan Sabnavis, chief economist at Bank of Baroda. “It is an attempt, or a pilot project, to test the country’s fiat currency. If this starts happening in larger volumes, the currency management cost for those involved in the cash distribution system may come down.”

Total cash in circulation was at Rs 28.32 lakh crore as on March 31, 2021.

CBDC is the legal tender issued by a central bank in a digital form. It is exchangeable one-to-one with the fiat currency. Only its form is different. Once it is launched, citizens could convert it into physical notes as well.

RBI, according to experts, may opt for a centralized service as any blockchain-backed platform is seen as not capable of dealing millions of transactions per hour. Cryptocurrencies are decentralised with no individual issuer or any debt liabilities.

The bitcoin blockchain supports up to seven transactions per second. Then there are some others that let a few thousand transactions per second, Rastogi said.

With depleting usage of paper currency, there is a need to popularise electronic platforms of currency. This becomes efficient in high physical cash usage economies like India. This could also substitute private digital currencies.