Prabin Kumar Padhy
(prabin.padhy@gmail.com)
Before the introduction of currency, we had the Barter System for the exchange of goods and other activities in ancient India since the Vedic ages. Over the years the barter system has been replaced by more convenient precious metals or metals of different weights for the exchange of goods. There is even evidence of such systems from the excavations at Mahenjo-Daro depicting the usage in the Indus Valley Civilization. Slowly the Barter System gave way to a better system of the monetary economy through the introduction of Coins for transactions, purchases, etc known as Currency.
Over the years the Currency System has taken precedence as the single system that controls all forms of transactions. According to Wikipedia CURRENCY is a standardization of money in any form, in use or circulation as a medium of exchange, for example, banknotes and coins. A more general definition is that a currency is a system of money in common use within a specific environment over time, especially for people in a nation-state. Earlier the currencies were divided into three categories of the monetary system, such as Flat Money, Commodity Money and Representative Money. In recent times with the advent of computers and the internet, another form of currency is highly in use called Digital Currency.
When we talk about India, our very own currency "The rupee" dates to the 6th Century BCE. India alongside Lydia and China was one of the earliest issuers of the coin in the world. The coins were first used in Mahajanapadas or Independent Kingdoms in Ancient India including Gandhara, Kuntala, Kuru, Panchala, Shakya, Surasena, and Saurashtra out of a total of sixteen.
Our very own "RUPEE" is derived from the Sanskrit word "rupya", which means "wrought silver", and maybe also something stamped with an image or a coin. During the reign of Samrat Chandragupta Maurya (circa 340 to 290 BC), his Prime Minister Chanakya is known to have mentioned the minting of coins such as Rupyarupa (silver), Suvarnarupa (gold), Tamararupa (copper) and Sisarupa (lead) in his famous book titled "Arthashastra". Over the years from the era of Moghuls to the British currency system of coins, our very own Rupee has changed many names from Rupyakam, Jittals, and Tanka to Rupiyaduring the reign of Sher Shah Suri.
This metal Rupiya kept going on afterwards in British rule until in the 18th Century paper currencies arrived when two banks the Bank of Hindostan General Bank in Bengal and the Bengal Bank became the first banks in India to issue paper currency.
As per the Reserve Bank of India chronicles, the transition of currency management from colonial to independent India was a reasonably smooth affair. Midnight, August 14, 1947, heralded Indian independence from colonial rule. The Republic, however, was established on 26th January 1950. During the interregnum, the Reserve Bank continued to issue the extant notes. The government of India brought out the new design Re 1 note in 1949. Finally, in the year 1950, the first Republic India banknotes were issued with denominations of Rs 2, 5, 10 and 100 having slight variations in colour and design in the case of Rs 2, 5 and 100 notes.
Over the years we have seen many forms of Indian currencies ranging from 500, 1000 to 2000-rupee notes after demonetization. And also, many coins of Rs 5, 10 value were minted during the journey, until recently, on 6th June 2022 while India is celebrating Azadi ki Amrit Mahotsav, Prime Minister Shri Narendra Modi launched a special series of Re 1, Rs 2, 5, 10 and 20 denomination coins that are also 'visually impaired friendly. These coins have the 'Azadi Ka Amrit Mahotsav' (AKAM) design.
With technology growing rapidly over the years and the internet has grown exponentially, there is the increased use of digital currency including plastic money called ATM/Debit / Credit Cards. Late another form of currency known as Cryptocurrency is an alternative form of payment created using encryption algorithms. Cryptocurrencies use encryption technologies and function both as a currency as well as a virtual accounting system. Since cryptocurrencies are a medium of exchange over an internet network that is not reliant on any central monitoring agency like a government or Bank to manage it, these are not treated as legal tender. Another problem is Cryptocurrencies such as Bitcoin, Ether and others are being used for money laundering, tax invasion and terror financing as per recent observations by law enforcement agencies across the world.
The more legitimate and alternative form of digital currency is the Central Bank Digital Currency (CBDC) launched by various central banks across the world. A CBDC is a high-security digital instrument like paper banknotes and is a means of payment, a unit of account, and a store of value. Like paper currency, each CBDC unit is uniquely identifiable to prevent counterfeiting. Its normally issued by the central bank of a sovereign nation and is freely convertible against the physical currency issued by the same central bank. A customer or user does not need to have a bank account for doing transactions using CBDCs.
According to a study by Atlantic Council Geo-economicsCentre, it is found that around 105 countries are considering launching a CBDC that would be primarily used for interbank transactions including most of the G20 countries.
During the Union Budget 2022 session in Parliament, Union Finance Minister Smt. Nirmala Sitharaman had asked the public to exercise caution while dealing in cryptocurrency and had said that CBDCs will be fully launched in India by 2023 under the leadership of Prime Minister Shri Narendra Modi and in comparison, to cryptocurrencies will have more advantage with lesser transaction cost and safe. Considering the evils associated with cryptocurrencies the Modi Government imposed heavy taxes on cryptocurrencies and virtual digital assets to control the rising use in illegal activities.
In line with the global CBDC plan, on 1st November 2022, the Reserve Bank of India launched its very own CBDC called E-RUPEE. The Indian version of CBDC will have two types of usage: Retail CBDC (e?-R) - will be potentially available for use by all i.e., by the publicised for retail transactions as an electronic form of cash and Wholesale CBDC (e?-W)–which is designed for restricted access to select financial institutions and will be used for interbank settlements plus other wholesale transactions.
While with UPI (Unified Payments Interface) transactions, any transfer on the platform might seem instantaneous but the settlement happens on the backend between two banks and takes some time with CBDC or E-Rupee the programmable nature of money will allow the user to make settlements instantly. Apart from reducing the transaction cost, it will enable the government to control the money flow in and out of the country or hawala transactions. Since it can't be burned, destroyed or even physically lost, it's more durable than paper currency. It is also expected to make interbank transactions efficient and more importantly will help reduce our dependence on US Dollar.
Like every other new project or plan has its pros and cons, our CBDC e-rupee can't be left without its merits and demerits. Since the E-Rupee is an introductory pilot project from RBI, it's too early to say about its effectiveness down the line. While all other countries implementing CBDC are sceptical about concerns like cyber security, and invasion of data privacy since it can accumulate a large amount of user data and will have heavy repercussions in the event of falling into wrong hands.
Some critics think that India has taken a hasty decision in launching E-Rupee and will face issues just like the situations that arise after the demonetization by Modi Govt which was taken hastily. Though they can have such fears, considering the aggressive economy the Narendra Modi-led Union Govt has been showcasing off late, being Indians, we should stay positive and appreciate the fact that unlike other developed countries we are surging ahead on technology, economy and security front. As the implementation of CBDC will take a longer time, there is ample time for the government to focus on issues and implications of the E-Rupee and will have a safe & smoother system in place in future.