During Budget 2022-23, Nirmala Sitharaman (Finance Minister of India) said “Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce digital rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23”

From the above statement, what we as blockchain investors/developers/enthusiasts could infer?

Digital Rupee is going to be similar to Digital Yuan?

China recently piloted a digital yuan program after banning cryptocurrencies like bitcoin, Ethereum usage. This digital yuan is simply an alternative to paper-based yuan, which means it is backed by the Govt and only minted, circulated by the government. Unlike other cryptocurrencies, it is not public. So, the cash alternative approaches are not based on blockchain. Only authorized banks can exchange your cash for digital currency. Hence if the digital rupee follows the same, it will be more useless since people already started adopting UPI, and no point in having digital currency as such.

Digital Rupee is based on Blockchain.

But to our surprise, the budget speech clearly states “digital rupee using blockchain and other technologies”. If it is based on blockchain, is it going to be a public ledger? No. It will be backed by RBI, hence 1 rupee = 1 Digital rupee, but the ledger will be private. RBI regulates the access control and gives access only to the controlled institutions under RBI. Similar to Digital yuan, minting, circulating, ledger management everything will be taken care of by the RBI. Hence, we could safely say, centralized blockchain. Well, no govt wants to give away its control over money and make it decentralized. That’s expected.

Digital Rupee and anonymity.

The key advantage of decentralized blockchain-based cryptocurrencies is anonymity. But with digital currency backed by RBI will also have anonymity? Probably. Not fully anonymous. For cryptocurrencies like bitcoin, Ethereum, we can create a wallet and get coins, hold it for many years without revealing our identity. The problem comes when we try to convert crypto coins to fiat or vice versa. We need to provide our KYC to convert it to any crypto exchange. This is the problem with the cash as well. We can be anonymous with cash, hold it, give it to anyone anonymously. No trace. Only it will become visible if it gets deposited in the bank. RBI wants to control that with UPI, and they are already successful in that. Then what’s the need for the digital rupee and its transactions? Well, I figure it will not be like a cash transaction (untraceable) or like a UPI transaction (traceable). Somewhere in-between with minimal identity and minimal traceability to track the circulation.

Digital Rupee Address vs Bank accounts.

Maybe the digital rupee will not require actual KYC similar to bank accounts, rather a simple mobile number backed address and anybody can create it on their own. So, with a mobile number RBI can trace the transactions only if required on a need basis. Although getting a mobile number is again requires KYC, so not full anonymity.

Note: The above content is my speculation and what-ifs based on the budget announcement about the digital rupee.