In recent times, the financial world has been in a state of excitement after the Reserve Bank of India (RBI) announced the launch of the pilot for a retail digital rupee (e₹-R) on December 1. Before that, on November 1, the pilot for a wholesale version of the digital rupee (e₹-W), essentially for bank-to-bank transactions in government securities, was launched.
As announced by the RBI, the pilot of e₹-R will cover select locations in closed user groups comprising participating customers and merchants.
The e₹-R will be in the form of a “digital token” and like other paper/fiat currency, represent legal tender. As in paper/fiat currency, the responsibility for proving the genuineness of the token lies with the holder.
According to the RBI, it will be issued in the same denominations as current denominations of paper currency and coins. It will be distributed through intermediaries, that is, banks. Users will be able to transact with e₹-R through a digital wallet offered by participating banks that will be stored on mobile phones or devices. Transactions can be both person-to-person (P2P) and person-to-merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations.
According to the RBI, e₹-R will offer features of physical cash such as trust, safety, and settlement finality guaranteed by the RBI. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks. The pilot will test the robustness of the entire process of digital rupee creation, distribution, and retail usage in real time.
Different features and applications of the e₹-R token and architecture will be tested in future rollouts, based on the learnings from the pilot. The RBI said in a release that it has identified eight banks for phase-wise participation in the pilot.
The first phase will begin with four banks, namely, State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank, in four cities. Four more banks, namely, Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank, will join subsequently. It is most surprising that the pilot bypasses most of the other robust public sector banks in the country.
The pilot will initially cover Mumbai, New Delhi, Bengaluru, and Bhubaneswar, and later be extended to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. Strangely enough, for reasons best known to the RBI, the first and second phases are programmed to exclude Kolkata and Chennai, which are important economic centres.
The apex bank said in the release that the scope of the pilot may be expanded gradually to include more banks, users, and locations, as needed.
It is to be noted that with the threat of cryptocurrency (nicknamed “crypto”), which began with Bitcoin in 2009, now beginning to rock global financial markets (though in a limited scale owing to its narrow presence), with the active aid of neoliberal shenanigans scripting a unique form of “gamble” in order to make money outside any government and central bank control, governments all over the world are helpless in dealing with a form of money that has no physical presence (as it is purely digital in nature) and neither is it subject to any government or central bank control.
This is mainly because of the unique nature of its operation based on blockchain technology that is available to core user groups of financial wizards. So, in every country, the dangers posed by different forms of cryptos threaten the very existence of official currency.
It has also made the prospects of money and fiscal management really difficult, as the entire mining of and dealings involving cryptos occur outside the formal banking and financial channels of countries.
However, the exponential growth of such “parallel private currencies” now seems to be facing a strong headwind, as many a player in what is essentially a gambling business has lost huge amounts following the collapse of crypto exchanges such as FTX.
Hence, the number of cryptos, which grew from 66 in 2013 to peak at 10,397 in February 2022, has now fallen to 9,310. Against this backdrop, central banks in several countries have launched pilots of their own version of a central bank digital currency (CBDC). This is now being touted by mainstream media as if it is a panacea for all the ills dogging a country’s economy, while also addressing problems such as financial inclusion.
Need for CBDC
In view of the threat posed by private currencies such as cryptos, CBDCs may seem to be the need of the hour to meet the threat of loss of monetary and later fiscal authority of the sovereign. There are no two opinions on the efficacy of the CBDCs (the Indian version being e₹-R) if juxtaposed only against the use of private currencies. In that case, the RBI’s e₹-R pilot is a welcome step. However, the story does not end there.
One has to be essentially naive to ignore the larger implications of the overall political economy of digitalisation being attempted in a class-ridden capitalist economy in the neoliberal era. The way the debate is being put across by mainstream media, it appears that as bona fide citizens our choice is limited: digitalise or perish.
In such a debate, the dominant voice, as usual, is of the government and of interests represented by finance capitalists. The increasing question and danger of surveillance by the government and curtailment of individual freedom are now expectedly occupying a back seat. However, the danger is real, even with CBDCs.
Interestingly, while discussing the possibility of a CBDC in the United Kingdom in 2021, Sir Jon Cunliffe, the Bank of England’s Deputy Governor for Financial Stability, said that programming a digital currency for commercial or social purposes was something the British government needed to consider. He said: “You could think of giving your children pocket money, but programming the money so that it couldn’t be used for sweets.”
There is another danger of data being collected and eventually used while one transacts on a digital platform, unlike in cash/currency transactions, where such possibility is eliminated ab initio. So, “programmable digital currency” is a real danger that will likely be a reality in the neoliberal era. Despite the advantages of a digital rupee, there is clear and present danger that its use would be closely monitored by the state, thereby leading to curtailment of individual freedom, huge abuse of data mining, and exponential growth of businesses based on digitalisation.
In a country like India, with the existence and frequent reported abuses of the Telegraph Act, 1885, (notwithstanding the safeguards introduced following a Supreme Court judgment in 2007) to eavesdrop on citizens’ communications, the danger of surveillance by the state even in bona fide private exchange of digital currency is a cause for concern despite the assurances given by the RBI Governor.
Despite the RBI promising the convenience of offline transactions for the use of e₹-R (which eventually may require an online platform to connect the dots before final settlement), one need not be an expert in economic sciences to fathom the real subtext of the digital rupee being launched and used in a country like India where a significant digital divide still exists.
An Oxfam publication titled “Inequality Report 2022: Digital Divide”, said that only 31 per cent of the rural population of India uses the Internet against 67 per cent of urban folk.
Only about 9 per cent of students enrolled in any course had access to a computer connected to the Internet and only 25 per cent of enrolled students had access to the Internet through any kind of device.
The report emphatically observed that the digital revolution of the finance sector has kept the digitally disconnected away from its benefits. The likelihood of digital payment by the richest 60 per cent is four times more than the poorest 40 per cent. The gender divide is also sharp, with only 31 per cent of the female population enjoying access to the Internet against 61 per cent of the male population.
Thus, digital technology essentialism, as being projected now through a campaign blitzkrieg named “Digital India”, is not always the best way to deliver public services. It requires, a priori, higher public investment in human resources, infrastructure, and education if the growing income inequality is to be bridged and the full, all-inclusive potential of digital tech is to be harnessed.
To conceptualise a world that is truly equal, digital transformation cannot be positioned as a universal “one size fits all” remedy for the country’s problems without addressing the structural inequalities inherent (and now deeply accentuated under the impact of COVID-19) in our society.
It is far more important to address the structural malaise of inequality through public provisioning of rights based universal education, health, income, old age pension, and financial inclusion in a traditional way than to opt for digitalisation, pretending it is a magic bullet.
Digital transformation of society will become far easier in a society that is just and equal. This is equally true in the case of the digital rupee.
Rana Mitra is General Secretary, All India NABARD Employees Association.
- The pilot of e₹-R will cover select locations in closed user groups comprising customers and merchants.
- The first phase will begin with four banks, namely, State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank, in four cities.
- The threat of cryptocurrency is beginning to rock global financial markets.
- The number of cryptos, which grew from 66 in 2013 to peak at 10,397 in February 2022, has now fallen to 9,310.
- In government-issued digital currencies, there is the danger of data being collected and eventually used.
- Digital technology essentialism is not always the best way to deliver public services.
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