CBDC Impact on Hotel Industry

Money is always been an important aspect of everyone’s life. Over the years we have seen it transforming from one form to another. Today, we’ll go to look at its latest digital form which is CBDC and its impact on the Hotel Industry.

CBDC stands for Central Bank Digital Currency. As the name suggests its currency is in digital form. It’s just like your currency notes that come with a stamp of approval from the RBI governor. If you notice your 20 rupee note holds the signature of the RBI governor. This states that it has sovereign approval and hence is called fiat currency. CBDC is the same thing just in digital form.

 

Assume you want to book a room for a hotel and you want to pay using your UPI-enabled app. So when you conduct a transaction funds get transferred from your bank account to the hotel owner’s bank account. So two banking systems are involved.
If we go back a few years you use cash to book a room so it’s a one-on-one transaction. Money moves from your hand to the hotel staff’s hand there’s no bank required.
This does not mean to say that when the CBDC comes the banks will disappear. They will have a large presence in the country’s financial system except for these kinds of transactions. Such transactions which will be equivalent to using your physical money there are no bank settlements required.

CBDC is a central bank digital currency it’s legal tender issued by the central bank like the RBI it’s exactly like your traditional currency except in a digital form. So you can use CBDC to purchase goods and services and even other kinds of transactions. It’s the traditional way of transacting except this is in a digital form. Similar to having 1000 INR in physical cash except here the cash is in your wallet on the app which is installed on your mobile device.
Well, thinking about it CBDC is very similar to cryptocurrencies as they both need a digital wallet to store manage and conveniently use your funds and both of them use the same technology which is blockchain. But CBDC is not like your typical cryptocurrency like Bitcoin.
Firstly let’s talk about decentralization. Cryptocurrencies are not governed by a central authority which means no banks and no government to regulate them.
On the other hand, India’s CBDC is governed and distributed by the RBI. This means management and regulation of this currency falls under the government of India. The RBI is also in charge of setting the limit and its distribution of costs. This allows them full responsibility to produce more digital coins in case there is a need to increase its supply.
Crypto is often looked at as a store of value that you can buy and sell on cryptocurrency exchanges. Whereas CBDC is the typical currency that you can use just like cash but it is a digital form. Also, you can only get CBDC from the central bank of India the RBI.
While both CBDC and cryptocurrencies work in similar ways in terms of tech they have different uses when looked at from the perspective of finance and policy angle.

As India is emerging as a famous vacation destination for international tourists, many foreign guests are willing to spend their vacation time in India. So they need to make travel arrangements from outside India. But the cost of cross-border transactions is still pretty high as is the time needed for such settlements. CBDC would probably be the
most efficient answer to this. Consider this example assume that India and the USA launch their respective CBDCs shortly and assume that these two systems can talk to each other. Then transactions between these two countries do not have to wait for banks to settle. So an American guest could pay his Indian tour operator in real-time. The transaction is final and it’s as if cash dollars are actually handed over to the system and would not even require the USA’s federal reserve to be open for such settlements. Time zone differences would become immaterial in these transactions.

There are lots of places in the country that are amazing tourist spots but lack internet connectivity. They might be located in the mountains or near the seashore. Consider a foot court in a hotel in such places offering multiple cuisines. They have multiple stalls and they do not allow you to pay using cash. There is a single cash counter where they top up your card for whatever value you want. Say that amount is 500 rupees so the card they give you has this amount. Then you go to every food counter say the Chinese food counter, the Indian food counter, or the deserts counter. There is a card reader on each of these counters. It does not require access to the Internet.

This can be achieved by using offline or peer-to-peer transaction mechanisms It just needs to be internally connected so that every time you swipe it the amount is debited from your wallet and sent to the vendor.

As we have already discussed in the previous section that there aren’t any banks involved in CBDC transactions. Individuals can have a digital wallet directly issued by the central bank. Users can access this digital wallet through a smartphone or other digital devices, enabling them to hold, store, and transact. This is beneficial for both tourists and hoteliers who might have hotels in remote locations, which limits the accessibility of bank branches.
Similarly, tourists who don’t hold any bank accounts can make use of this.

As we have discussed in this article that CBDC holds the potential to transform the way we conduct financial transactions.
Furthermore, CBDC has the potential to revolutionize cross-border payments making them faster, cheaper, and more efficient.
However, it is still too early to say about the positive impact of CBDC. Things will get more clear once CBDC actually launches in India.

I hope you liked my article about CBDC and it’s impact on the hotel industry. 

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