A central bank digital currency created by the Reserve Bank of India is known as the digital rupee or e-rupee (RBI). The only difference between it and the real money you carry in your wallet is that the e-rupee is stored electronically in a digital wallet that is under the RBI's control. Since the RBI has recognised the digital rupee as legal tender, everyone in the nation must accept it as a form of payment. However, it is distinct from bank deposits that you have. The central bank does not pay interest on the virtual rupees in your wallet, in contrast to deposits that are. One can exchange bank deposits for digital rupees and the other way around.
What is CBDC in e-Rupee?
In digital form, the RBI has issued Central Bank Digital Currency (CBDC) as legal tender. It is interchangeable one-to-one with fiat money since it is the same thing. It is not paper like actual money, the only difference is in its shape. There is no requirement for holders to have a bank account because it is fungible legal currency. On the balance sheet of the RBI, CBDC will be listed as a "liability" (a measure of currency in circulation).
The e-rupee will take the form of a digital token that represents a claim on the central bank and will effectively serve as the digital representation of a banknote that can be electronically transferred from one holder to another. Similar to a banknote, a token CBDC is a "bearer-instrument," which means that whoever "holds" the tokens at any particular time will be considered to be the owner.
How is RBI launching the Digital Currency ?
In a pilot programme, the RBI on Thursday introduced e-Rupee, which will first be available in four major cities—Mumbai, New Delhi, Bengaluru, and Bhubaneswar—and will subsequently be expanded to include Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.
According to the Reserve Bank of India, the pilot project would operate in a closed user group (CUG) made up of participating customers and businesses. Customers from specific cities will receive digitally printed notes from CBDC wallets bearing the RBI Governor's signature. Customers can use it for both personal and business transactions.
The pilot will initially involve eight banks: the State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank in the first phase in the first four locations, and then the Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank. The pilot's reach may be gradually increased to include more banks, users, and places.
How can you use the e-rupee ?
E-rupees will be distributed through intermediaries, namely banks, and will be issued in the same denominations as coins and paper money. The participating banks' digital wallets will be used for transactions, and mobile phones and other devices will store the wallet data. Both person-to-person (P2P) and person-to-merchant transactions are possible (P2M). At the retailer's location, there will be QR codes for P2M transactions (eg. Purchases). The same way a you currently withdraws physical currency, you will also be able to withdraw digital tokens from banks. The individual will be able to store their digital tokens in the wallet and use them to transfer funds, make purchases online or in person, or transfer them via an app.
How is it different from UPI ?
UPI, in contrast to digital rupee, is merely an interface for carrying out transactions using real money. Which we do using Google Pay, Paytm and other wallets. On the other hand, Digital Rupee is just another type of money that is similar to fiat money and cannot be withdrawn from a bank account.
What are the types of e-rupee ?
The RBI has divided the digital rupee into two categories: retail (CBDC-R) and wholesale, taking into account usage, the services the digital rupee performs, and various levels of accessibility (CBDC-W). Retail e-rupee is an electronic version of cash that is primarily designed for retail transactions. It has the ability to be used by practically everyone and can offer access to secure funds for settlement and payment. Compared to this, Wholesale CBDC is intended for limited access at a few particular financial institutions. In addition to making the capital market more secure and efficient in terms of operational costs, collateral use, and liquidity management, it has the potential to transform the settlement systems for financial transactions carried out by banks in the government securities segment and interbank market.
Why RBI introduced e-rupee in India ?
India can become a $1 trillion digital economy by utilising blockchain technology for the e-rupee. The volume and value of UPI transactions increased by 180% and more than 98%, respectively, in Q2 2022 compared to Q2 2021, according to Srinivas Nidugondi, Chief Growth and Transformation Officer at the mobility solutions provider Comviva. This indicates that digital transactions are growing rapidly in India.
According to Mahesh Shukla, CEO & Founder of fintech company PayMe India, the digital rupee based on transparent and effective technology would give clients ongoing access to the payment system, whether wholesale or retail.
What are the benefits of e-rupee ?
The possible advantages of CBDC include a decrease in the need for cash, higher seigniorage because of lower transaction costs, and decreased settlement risk. The cost of printing, transporting, keeping, and distributing currency can be decreased to the extent that massive cash usage can be replaced by CBDCs, the RBI claims.
The CBDC has some intrinsic advantages as a sovereign currency, stated Jaya Vaidhyanathan, CEO of fintech solutions provider BCT Digital. The main benefit is that it guarantees finality of settlement and lowers settlement risks in the financial system. Thus, the e-rupee provides the general people with improved access to digital currency. Additionally, she added, "It might offer a strong and secure framework for innovations in the private sector.".
Will CBDC work in offline mode ?
The RBI has not yet made it clear whether or not the e-rupee will operate in offline mode. Although offline functionality will enable CBDC transactions in areas with limited or no Internet connectivity and leave digital footprints of the not banked population in the financial system, the RBI believes that there is a risk of "double-spending" in offline mode because it will be possible to use a CBDC unit more than once without updating the common ledger of CBDC. The RBI, however, has stated that this can be greatly reduced by technical solutions and sensible business standards, such as a monetary cap on offline transactions.
Can CBDC or e-Rupee System be Hacked ?
With widespread hacking on the rise and all other existing RBI-affiliated systems being equally vulnerable, the situation will be handled for both the e-Rupee and the CBDC environment thanks to cybersecurity protocols in place.