Powerful Impacts Of RBI’s Digital Currency on Stock Market

1 December 2022, marked a landmark progress in the history of the Indian economy when the Reserve Bank Of India launched a “Digital Rupee” pilot for the retail segment. The launch of CBCD (Central Bank Digital Currency) by the RBI propelled the journey of digital transformation embarked on by the country. The “e-rupee” launched by the central bank is a form of digital currency that comes under the legal tender, so its usage will be similar to the general paper note currency used domestically. This tokenised version of the Indian rupee will give India a launchpad for entering the race of the digital revolution encircling the world. According to the findings by the Atlantic Council, 18 of the G20 countries are making advancements in the central bank’s digital currency. It is of much significance that India makes firm steps in the same direction too.

How RBI’s Digital Rupee Will Work?

In the pilot phase, a few banks and some retail investors in selected cities were given access to digital currency in different stages. In the pilot phase, customers were given access to a digital wallet by the designated banks, which can be operated on Androids. The transactions can take place via e-wallets with registered banks.

This initiative by the central bank works on similar lines of crypto and blockchain mechanisms. There are already existing digital currencies in the market, the most common ones are Bitcoin, Dogecoin, etc, but the CBCD is a form of a digital form of a country’s fiat currency that the central bank backs, unlike the distributor-ledger technology on which other cryptocurrencies run. There is a lot of uncertainty surrounding the functioning and the usage of the e-rupee, like the distinction between this digital currency and any other UPI payment mechanism.

To give clarity on the subject, the RBI governor, Shaktikant Das, said”Any UPI transaction involves intermediation of the bank… In CBDC, just as the paper currency you go to a bank, draw currency and keep it in your purse, you go to a shop and pay from your wallet… similarly, here also you can draw digital currency and keep it in your wallet which will be your in mobile phone… and when you go and make a payment in a shop or to another individual, it will move from your wallet to his wallet… there is no routing or intermediation of the bank.”

How Will Digital Currency Impact The Stock Market?

The advent of the digital rupee will not only be making its impact on the economy as a whole but it is speculated that the impact of the e-rupee will bring significant changes in the stock market as well.

Unlike other cryptocurrencies and digital currencies, the new digital currency is backed by a central bank; the E-rupee will reduce the aspect of volatility and risks that encircle the stock market. Since a strong monetary authority backs it, it becomes easier to regulate the digital currency. This reduction in the risk factor indicates that there will be fewer fluctuations in the listed and unlisted share prices.

According to a research article published in the Technological Forecasting and Social Change: CBDC, in general, has shown positive and negative effects on the stock market—a negative relationship with the volatilities of the banking sectors, stock markets, and USEPU. A positive relationship with the volatilities of cryptocurrency, foreign exchange, and bond markets, as well as VIX and Gold, has also been observed.

The advent of the e-rupee can give a new source to the settlement process in the financial market and the stock market in particular. A report by the Economic Times stated that E-rupee would be used to settle secondary market transactions in Indian government bonds worth Rs. 2.75 billion. The settlement in the digital rupee would reduce transaction costs and prevent the need for any collateral. This would nudge a large number of investors to undertake this form of transaction, in turn proving to be a green signal for an upsurge in the stock market.

Make The Most Out Of This Opportunity

With the popularity that the digital rupee is gaining, it will be worthwhile for investors to buy stocks in the companies and firms (both listed and unlisted) dealing majorly in digital currency. The fear of inflation and changes in the monetary and fiscal policy that affect the fiat money are making investors turn towards digital currency, which is free from such policy restrictions. If you also want to invest in shares of an unlisted company and buy unlisted shares (that are making its move towards the digital currency revolution), then you should consider Stockify, a leading provider of unlisted shares in India. Not only will you get access to unlisted shares at an early stage, but you will also get the best customer support and well-researched evaluations. So, multiply your returns and make the most of this digital currency revolution that has affected the stock market with Stockify.