Project Title:- PaySa Name:- Engine Date:- 3rd November, 2023 Affiliation:- MAKAUT
Summary:-
A Central Bank Digital Currency (CBDC) called the "e-rupee" is to be included into the nation's current financial system as part of this project. The central bank issues and controls this digital currency, which provides a safe and effective way to make digital payments with the intention of improving financial inclusion, payment effectiveness, and general economic stability.
- a. Problem Statement:- CBDC AND E-RUPEE BRIDGING THE GAP BETWEEN INNOVATION AND ADOPTION.
- b. Methodology:- The project adheres to a systematic methodology that comprises extensive testing, technology selection, security assessment, stakeholder involvement, legal and regulatory analysis, and feasibility assessment. The procedure calls for careful planning, strict development, ongoing oversight, and adherence to all applicable laws.
- A Central Bank Digital Currency (CBDC) is a digital form of a country's national currency, issued and regulated by the central bank. Unlike cryptocurrencies like Bitcoin or Ethereum, CBDCs are centralized and are considered legal tender. They exist alongside physical banknotes and coins, providing a digital representation of a country's official currency.
- Financial Inclusion: By giving those who are underbanked or unbanked access to banking services, CBDCs help increase financial inclusion. It is not necessary to have a regular bank account in order to use a digital wallet.
- Cross-Border Payments: By accelerating and streamlining cross-border payments, CBDCs can eliminate the need for middlemen and foreign exchange costs. Remittances and foreign trade may become more effective as a result.
- Monetary Policy and Control: CBDCs can help central banks more efficiently adopt and adjust monetary policy. More specifically, they can affect inflation, money supply, and interest rates.
- Financial Stability: By lowering the possibility of bank runs and offering a more secure option to privately produced digital currencies, CBDCs can improve financial stability. It can also aid in reducing problems like fake money.
- Reduced Transaction Costs: The use of digital currencies can result in financial savings from the need to produce, distribute, and manage real cash along with the current payment infrastructure.
- Smart Contracts and Programmable Money: Certain CBDCs have the ability to include smart contract features, which enables programmable money and automated, self-executing financial agreements.
- Combatting Illicit Activities: Improved traceability made possible by CBDCs can aid law enforcement in their fight against illegal activities such as tax evasion and money laundering.
- Innovation and Development: CBDCs have the potential to encourage innovation in the financial industry and result in the creation of new financial services and products.
a. Overview:-
The goal of the CBDC Integration initiative, often known as the "e-rupee" initiative, is to improve the nation's financial infrastructure by introducing a cutting-edge Central Bank Digital Currency (CBDC). The goal of the "e-rupee" CBDC is to empower people, companies, and the economy as a whole by offering a safe, effective, and universal digital payment system.
b. Objectives:-
- Integrating CBDC and E-Rupee for better financial services in the country, especially in the areas of limited traditional banking infrastructure.
- Increasing the efficiency and speed of payments, reducing the time and costs associated with traditional payment methods, especially valuable for cross-border payments.
- Reducing the need for physical currency issuance and distribution.
- Enhancing the security of the financial transactions, making more resistant to counterfeiting and fraud in physical currencies
- Enabling Central Bank of countries to implement fine-tuned monetary transaction policies.
- Streamlining finer cross-border transactions with immediate effect without delay.
- Making it easier to track down and combat illegal monetary activities.
- Supporting the growth of digital economy by providing native digital currency.
c. Problem:
Integrating CBDC and E-rupee and bridging the gap between innovation and adoption.
d. Significance & Motivation: -
- All age groups of people will be brought together in this digital growth by making online payments hassle-free, with immediate effects.
- Implementing offline quick payments in areas of low internet connectivity.
- Decreasing the involvement of physical currencies, thus reducing collateral costs in generation of physical currencies.
- Reducing the chances of counterfeiting and fraudulent payments.
- Providing more power to Central Bank Institution of countries to control the monetary flow.
RBI governor Shaktikanta Das recently clarified the differences between CBDC & UPI stating, “In CBDC, you will draw the digital currency and keep it in your wallet on your mobile. When you make a payment at a shop or to another individual, it will move from your wallet to their wallet” India, Singapore and China have been the most prominent countries who have undertaken this form of online payment. Infact, China has been the foremost player in the CBDC form of payment, as is evident from the below stats, as of Jan 2023:-
We can see, the amount involved in China’s CBDC, almost equal to 14 billion e-CNY. And this no. has been increasing more ever since.
- a. Regulatory Compliance:
- Adherence to all applicable banking and payment laws, including those pertaining to data security, know your customer (KYC), and anti-money laundering (AML).
- Complying with any particular regulatory standards or guidelines established by the central bank or other appropriate governmental bodies.
- b. Technology Infrastructure: Setting up a scalable and safe technological infrastructure to facilitate CBDC transactions. This covers the application of distributed ledger technology (DLT), blockchain, and other safe and effective systems.
- c. Security Measures: - Implementing robust security measures to safeguard the CBDC network and transactions against hacking, fraud, and other security threats. - Ensuring the privacy and protection of user data and transaction information.
- d. Interoperability:
- Ensuring compatibility with other digital wallets, payment gateways, and financial institutions as well as with the current payment systems. CBDCs ought to integrate easily with the present payment q system.
- e. User Onboarding:
- Creating an easy-to-use onboarding procedure to help people and companies purchase CBDC wallets. Identity verification (KYC) and setting up a digital wallet should be part of this process.
- f. User Education:
- Educating consumers and offering assistance so they can utilize CBDC and the new payment mechanism.
- Cross-Border Capabilities
- Making agreements and relationships with other nations' central banks in order to get ready for trade and transactions across borders.
- g. Liquidity Management:
- Managing and ensuring the liquidity of the CBDC to support smooth transactions and prevent volatility.
- h. Transaction Speed and Efficiency: - Ensuring that CBDC transactions are fast and efficient to encourage adoption and daily use.
- i. Resilience and Redundancy: - Including backup and durability in the CBDC system to guarantee that it keeps running even in the event of cyberattacks or technical malfunctions.
- j. Regulatory Reporting:
- Establishing a system for reporting transactions to regulatory authorities to facilitate compliance with tax and financial regulations.
- k. Public and Stakeholder Engagement:
- Engaging with the public, financial institutions, and other stakeholders to communicate the benefits of CBDC and gather feedback.
- l. Testing and Simulation:
- Conducting extensive testing and simulations to ensure the stability and security of the CBDC system before launch.
- m. Legal Framework:
- Creating the agreements and legal framework required for the issue and administration of CBDC. This could involve having contractual and legal ties with tech suppliers.
- n. User Experience (UX) Design:
- Designing a user-friendly interface for the CBDC wallet and mobile or web application to encourage adoption and usability.
- o. Scalability:
- Planning for scalability to accommodate a growing user base and increasing transaction volume.
- p. Project Governance:
- Establishing a governance structure to oversee the development, deployment, and management of the CBDC.
- q. Collaboration with Stakeholders:
- Collaborating with financial institutions, businesses, and government entities to promote the use of CBDC.
- r. Research and Development:
- Investing in research and development to continually improve the CBDC technology and its features.
- Software Architecture
- Flowcharts
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- Programming Languages Used
- HTML
- CSS
- JavaScript
- Tools
- Visual Studio Code
- Database: - MongoDB
- Code Snippets
The software will be deployed by integrating the framework release by RBI. The Direct Model (Single Tier model) and the Indirect Model (Two-Tier model) are the two models used for the issuance and administration of CBDCs. A direct model would have the central bank in charge of handling the issuance, account maintenance, and transaction verification of the CBDC system. A central bank and other intermediaries, such as banks and other service providers, each have their specific function under an indirect model. Under this arrangement, the central bank merely manages wholesale payments to intermediaries; it does not directly issue CBDC to consumers through intermediaries. Instead, the intermediary handles any consumer claims. The indirect model is comparable to the existing physical currency management system, in which banks oversee various functions such as note distribution to the general public, account maintenance, compliance with know-your-customer (KYC) and anti-money laundering/countering terrorist financing (AML/CFT) regulations, transaction verification, etc.
The user/clients will have to register themselves through their email id’s, phone no. and then setup the password for security. The further verification will be done by OTP facility. To send CBDC from their wallet, users will have to enter the special hash address for the destination wallet, and enter the amount. To receive CBDC in their wallet, user can request for a send-up payment by sending request for the required amount to the parent wallet, using special hash address.
The software project has been properly delivering the required results, by allowing seamless transactions over wallets, even in low or no connectivity areas.
- Adoption & Usage
- The quantity and frequency of users who have adopted the "e-rupee" as a result.
- Analysis: Determine the target population's degree of adoption and ascertain usage trends.
- Financial Inclusion
- Increased availability of financial services as a result, particularly for the underbanked and unbanked.
- Analysis: Taking into account the demographics of new users, evaluate how much the project has enhanced financial inclusion.
- Transaction Efficiency
- As a result, transactions are quicker and more affordable than with conventional payment methods.
- Analysis: To gauge the efficiency advantages, examine transaction costs and speeds.
- Cost Reduction
- As a result, handling and maintaining actual currency is less expensive.
- Analyze: Compute the financial institutions' and the central bank's cost savings.
This project will be made as a type of Paytm for CBDC payments. Cross country transactions will also be feasible in the future
We thank you SIT TechFrenzy for providing us the platform to showcase the solutions to this problem statement.