Intelsense Capital Blog: Curiosity@Intelsense

Multidisciplinary learning is one of the best ways to improve our investment acumen. Here is a summary of some of the best learnings of the week.

This week I want to talk about CBDC.

CBDC is short for Central Bank Digital Currency. It is, as the name suggests, a digital form of currency issued by the central bank RBI. It is distinct from UPI, IMPS, NEFT and RTGS as these are not currencies but payment and money transfer mechanisms. In these payment mechanisms, money gets transferred from one bank account to another. While in CBDC that RBI has recently launched as a pilot, money will move from one digital (e.g. mobile) wallet to another digital wallet without going through the banks of either of the two transacting parties. In a sense, it is like giving cash in your wallet to a friend. Neither of your banks gets to know but money has moved from one person to the other.

The idea of CBDC or e₹-R is to make it a digital form of cash and it will be available in the same denominations as cash and it will be first distributed through banks.

Users will be able to transact with e₹-R through a digital wallet offered by the banks and stored on mobile phones and devices. Transactions can be both person-to-person (P2P) and person-to-merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations. As per the RBI, “The e₹-R would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks”.

There are some benefits to e₹-R. It drastically reduces the cost of banknote printing and circulation. It also reduces the cost of transfers and remittances by cutting down on multiple intermediaries. Another important feature is that as it is issued directly by RBI, it will be a liability on the central bank’s balance sheet and not earn any interest for the end user.

The way it is currently structured, as an end-user, I find it indistinguishable from the systems we currently use. To me, it looks a lot like a solution in search of a problem. Maybe I am ignorant, or some use case will appear in the future that will make this a grand success, but for now, I can’t find a single compelling reason why I would prefer using e₹-R over the existing system already in place. I will keep tabs on this and keep updating you from time to time as and when something progresses.

Thought of the Week:

“What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.” ~ Herbert Simon

We need to be very very selective about how we filter information. Putting here a chat with a friend who is himself an extremely accomplished and disciplined investor. The idea is to use humans and AI to curate and suggest what you want to read, listen to or watch. Secondly, we need to be ruthless about protecting our time and attention. I used to feel very guilty about leaving a book or movie midway. Now I don’t care. If the subject does not intrigue me, then I am out.