A Study on Upcoming Central Bank Digital Currency: Opportunities, Obstacles, and Potential FinTech Solutions using Cryptography in the Indian Scenario

The Indian government has decided to introduce a digital version of its currency, aptly named the 'Digital Rupee'. This announcement and the new dawn of the 5G mobile technology show India’s intent to lead the world in the Digital Revolution. This research paper seeks to study the various aspects of this announcement from an economic and financial perspective. The researchers have detailed the various possible benefits and risks of this decision based on the limited information provided by the government on the design of the central bank digital currency (CBDC). In particular, they have discussed the cybersecurity risks, such as hacking and government surveillance, and have suggested possible cryptography solutions like hashing and tokenization. The decision also means expanding the role of the Reserve Bank of India (RBI) from being just a central bank to providing payment services. The most important design characteristic of the Digital Rupee is its levy of interest. The paper discusses the cases of interest-bearing and non-interest-bearing Digital Rupee, along with their potential economic and monetary policy implications. The researchers have showcased various existing mathematical/ FinTech models for predicting the impact of CBDCs on the banking sector. They have commented that the short-term possibility of replacing cash with the Digital Rupee is non-existent due to the enormous volume of cash transactions in the Indian economy, whereas the long-term probability is much brighter. They have also compiled the country-specific challenges in implementing the CBDC, such as the population’s lack of financial literacy and the country’s weak technological infrastructure.