A Digital Rupee
A diabolic plan to replace paper currency
We keep talking about a digital economy, but cash is still king because 1) not everybody has access to the internet also not everybody can use the internet, 2) All digital transaction need a third party which takes a cut of every transaction (as opposed to cash) and 3) nobody trusts crypto-currencies, especially not the government. I propose a different alternative called Digital Rupee.
A digital rupee will be issued by the RBI instead of printing cash. The RBI releases one unique digital token for each paisa it wants to print. Each token can store the identities of the wallet number (not person) who owns/owned it. It can be used just like how we use cash right now, just through a digital interface. Every time the paisa ends up at a bank it gets refreshed or synchronized with the master database and cleared for future use to keep it small.
People continue transacting with money the usual way, they download money from the bank into a wallet, which could be a mobile phone or a simple device (more on this device later) kind of like withdrawing money from the ATM. The money is present in their wallet to spend. When they need to give money to someone, the two devices talk between them through Bluetooth (or some other network protocol), the transaction is authenticated and the digital rupee is transferred directly without the need for a central service, just like how you would pay someone cash. The token keeps track of the change in ownership for fraud/theft/tracking purposes.
People can set limits for how much money stays in a wallet and how much is transferred to their bank account. If their device gets stolen, the money at immediate risk would only be the money on the device, and even that can be traced back. A bank can put a transaction alert on that stolen token and it can be recovered. The device could also have some authentication (biometric / password) before the money can be used as another safety mechanism.
Mobile phones are ubiquitous, but not everyone can have a mobile phone (people in remote areas, kids), for them we will need another type of wallet, it could be a credit/debit card which can be used at point-of-sale machines, the money is transferred through a bank to the vendor. We could also have a simple Bluetooth enabled device which can work like a wallet that can send and receive payments from other devices. Say you send your kids to buy fruits from a vendor. You download 1000 digital rupees to the device, they use the device to transfer the money to the vendor just as if you gave them 1000 rupees in paper currency. All the device needs is a place to punch in numbers, a Bluetooth connection and biometric authentication.
The ability to transfer money directly to other devices solves the issue of people having to pay a transaction tax which is a major knock against the present form of digital transactions. It is like cash, just digital. Paper currency is cumbersome, difficult to print, maintain, a digital currency solves all those problems. Paper is so 17th century.
Why not something like bitcoin you might ask, well for one, bitcoin is too decentralized for it to be palatable to any government, also an idea that currency needs more and more resources just to keep functioning (hashing) doesn't seem like something that is sustainable. The present virtual currencies have become more of a commodity as opposed to a currency, and for all its claims it has just created a different nouveau rich, people with computer processing power. I do not believe that cryptocurrencies can replace mainstream cash in their present form.
The devil they say is in the details, well here we have many devils, implementation, security, privacy, and access for all.
The digital rupee can be phased in by marking its value equivalent to the present rupee so that people can still use paper money, and slowly, but surely, it can be converted to digital currency by the RBI. The mobile app is easy to make free, but it would really help if the government can subsidize the physical wallet for people to carry around.
Privacy is a bigger issue, tracking money is a double-edged sword, one one hand the digital rupee will make it really difficult to hide black money but at the same time it opens up the possibility for the government to track everyone's finances. Frankly though, its already the case, we arent much farther from the government being able to track a person's finances. We might need to sacrifice some privacy for a cleaner economy. Regulations can be put in place for using the tracked information, but this definitely is a debatable point. I believe people will come around to the privacy aspects as it makes life easier for them and helps the country build a clean economy.
The biggest devil though is security, Anything digital can be hacked, but I am hopeful we can come up with the technology to keep the network secure, the perils are similar to fake currency but the scale is larger, I am sure the technology is out there. The success of the entire system will depend on this aspect.
Next steps
Create infrastructure of how money gets from RBI to banks. A phone application to hold money and a wallet device for the same. technology for the transfer of money between devices and bank accounts. Refresh of the digital money when it gets to a bank. The security for each step in the above.
I would really love to get down to the technical details of the digital rupee, will get to it.
We keep talking about a digital economy, but cash is still king because 1) not everybody has access to the internet also not everybody can use the internet, 2) All digital transaction need a third party which takes a cut of every transaction (as opposed to cash) and 3) nobody trusts crypto-currencies, especially not the government. I propose a different alternative called Digital Rupee.
A digital rupee will be issued by the RBI instead of printing cash. The RBI releases one unique digital token for each paisa it wants to print. Each token can store the identities of the wallet number (not person) who owns/owned it. It can be used just like how we use cash right now, just through a digital interface. Every time the paisa ends up at a bank it gets refreshed or synchronized with the master database and cleared for future use to keep it small.
People continue transacting with money the usual way, they download money from the bank into a wallet, which could be a mobile phone or a simple device (more on this device later) kind of like withdrawing money from the ATM. The money is present in their wallet to spend. When they need to give money to someone, the two devices talk between them through Bluetooth (or some other network protocol), the transaction is authenticated and the digital rupee is transferred directly without the need for a central service, just like how you would pay someone cash. The token keeps track of the change in ownership for fraud/theft/tracking purposes.
People can set limits for how much money stays in a wallet and how much is transferred to their bank account. If their device gets stolen, the money at immediate risk would only be the money on the device, and even that can be traced back. A bank can put a transaction alert on that stolen token and it can be recovered. The device could also have some authentication (biometric / password) before the money can be used as another safety mechanism.
Mobile phones are ubiquitous, but not everyone can have a mobile phone (people in remote areas, kids), for them we will need another type of wallet, it could be a credit/debit card which can be used at point-of-sale machines, the money is transferred through a bank to the vendor. We could also have a simple Bluetooth enabled device which can work like a wallet that can send and receive payments from other devices. Say you send your kids to buy fruits from a vendor. You download 1000 digital rupees to the device, they use the device to transfer the money to the vendor just as if you gave them 1000 rupees in paper currency. All the device needs is a place to punch in numbers, a Bluetooth connection and biometric authentication.
The ability to transfer money directly to other devices solves the issue of people having to pay a transaction tax which is a major knock against the present form of digital transactions. It is like cash, just digital. Paper currency is cumbersome, difficult to print, maintain, a digital currency solves all those problems. Paper is so 17th century.
Why not something like bitcoin you might ask, well for one, bitcoin is too decentralized for it to be palatable to any government, also an idea that currency needs more and more resources just to keep functioning (hashing) doesn't seem like something that is sustainable. The present virtual currencies have become more of a commodity as opposed to a currency, and for all its claims it has just created a different nouveau rich, people with computer processing power. I do not believe that cryptocurrencies can replace mainstream cash in their present form.
The devil they say is in the details, well here we have many devils, implementation, security, privacy, and access for all.
The digital rupee can be phased in by marking its value equivalent to the present rupee so that people can still use paper money, and slowly, but surely, it can be converted to digital currency by the RBI. The mobile app is easy to make free, but it would really help if the government can subsidize the physical wallet for people to carry around.
Privacy is a bigger issue, tracking money is a double-edged sword, one one hand the digital rupee will make it really difficult to hide black money but at the same time it opens up the possibility for the government to track everyone's finances. Frankly though, its already the case, we arent much farther from the government being able to track a person's finances. We might need to sacrifice some privacy for a cleaner economy. Regulations can be put in place for using the tracked information, but this definitely is a debatable point. I believe people will come around to the privacy aspects as it makes life easier for them and helps the country build a clean economy.
The biggest devil though is security, Anything digital can be hacked, but I am hopeful we can come up with the technology to keep the network secure, the perils are similar to fake currency but the scale is larger, I am sure the technology is out there. The success of the entire system will depend on this aspect.
Next steps
Create infrastructure of how money gets from RBI to banks. A phone application to hold money and a wallet device for the same. technology for the transfer of money between devices and bank accounts. Refresh of the digital money when it gets to a bank. The security for each step in the above.
I would really love to get down to the technical details of the digital rupee, will get to it.
posted by adarsh adarsh at 1:19 PM
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