The Digital Rupee, also known as e-Rupee (e₹), is the central bank digital currency (CBDC) of India. It is a digital tokenized version of the Indian Rupee, issued and regulated by the Reserve Bank of India (RBI). Similar to the Crypto Currency, the e-Rupee is also made by using the Blockchain technology. Blockchain is a decentralized and distributed digital ledger technology that securely records transactions across a network of computers, creating a chain of blocks where each block contains a timestamped and immutable record of data, connected through cryptographic validation. It enables transparent, secure, and tamper-resistant storage of information without the need for intermediaries. The e-Rupee is hosted by the NPCI (National Payments Corporation Of India) who hosted the UPI Platform.
In simpler terms, the Digital Rupee is digital money issued by the Indian government, just like the physical notes and coins we use today. However, it exists only in electronic form, and can be accessed and used through digital wallets on mobile phones or other devices. We need to install a Valet in the device to store the Digital Rupee. The Digital Rupee is available in the same denomination as the physical notes. e.g. 5, 10, 20.
The Digital Rupee is in pilot phase now and currently 4 Major banks are involved in this phase.
- SBI
- ICIC BANK
- YES BANK
- IDFC FIRST BANK
Why We need the Digital Rupee over Physical Money and UPI?
Lets try to understand how the physical money made available to the public.
the process of making physical currency available to the public involves several steps overseen by the Reserve Bank of India (RBI).
Currency Printing: The printing of currency notes is done by four printing presses owned by the Government of India. These presses are located in Nashik (Maharashtra), Dewas (Madhya Pradesh), Salboni (West Bengal), and Mysuru (Karnataka). Printing currency and strict quality checking is both time consuming and costly. Also RBI needs to manage the infrastructure for these.
Distribution: Once the currency notes are printed and quality-checked, they are sent to RBI regional offices and currency chests across the country. Currency chests are managed by commercial banks and select branches of these banks act as storehouses for cash to meet the public’s demand for currency in specific regions.
Banking System and ATM Supply: Banks and financial institutions obtain currency from the RBI’s currency chests based on the demand. Banks then distribute this physical currency to their branches and ATMs to meet the public’s need for cash withdrawals.
Exchange and Circulation: The currency reaches the public through various means such as ATM withdrawals, bank branches, currency exchange counters, and other financial transactions where physical cash is involved.
By implementing the Digital Rupee, RBI will be able to easily circulate the e-rupee all over India in matter of time which is Cost effecting and Fast. Also, the Digital Rupee is environment friendly as its stores in electronic formats.
Why we need digital rupee over UPI?
Controlled by Central Authority: A digital rupee or CBDC is issued and regulated by the central bank (like RBI in India). Unlike UPI, which operates on top of existing banking systems, a CBDC is a direct liability of the central bank, giving it greater control over the monetary policy, money supply, and the overall financial system.
Reduced Dependency on Intermediaries: UPI transactions are facilitated by banks or third-party payment service providers. CBDCs can enable peer-to-peer transactions directly between users without intermediaries, potentially reducing transaction costs and enhancing privacy.
Cross-Border Transactions: CBDCs could simplify and expedite cross-border transactions by providing a central bank-backed digital currency, reducing complexities associated with currency conversion and international payments.
Here are some of the potential benefits of Digital Rupee
Faster and cheaper payments: Digital Rupee transactions can be settled instantly, making them faster and cheaper than traditional bank transfers.
Improved financial inclusion: Digital Rupee can provide access to financial services for those who are currently unbanked or underbanked.
Increased transparency and security: Digital Rupee transactions are recorded on a secure blockchain ledger, making them more transparent and secure than cash transactions.
Reduced reliance on cash: Digital Rupee can help to reduce the reliance on cash, which can be costly and inconvenient.
Here’s a table summarizing the key differences between Digital Rupee and other digital currencies.
| Feature | Digital Rupee | Cryptocurrency |
|---|---|---|
| Issuer | Reserve Bank Of India (RBI) | Private entities or individuals |
| Value | Backed by the Indian Rupee | Fluctuates based on market demand and supply |
| Use Cases | Retail payments, wholesale payments, cross-border payments | Investment, speculation, online payments |
| Security | Legal tender as backed by Government | Not able to track as it belongs to private entities |
The RBI is currently conducting pilot tests of the Digital Rupee, and it is expected to be rolled out to the general public in the near future.
Here are some additional resources that you may find helpful:
Digital Rupee – Central Bank Digital Currency (CBDC): https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54773
What Is Digital Rupee? How Is It Different From Cryptocurrency?: https://www.businesstoday.in/personal-finance/news/story/how-is-rbis-digital-rupee-different-from-cryptocurrency-354887-2022-12-01
Digital Rupee: How central bank digital currency (CBDC) will boost financial inclusion: https://rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage&ID=1218
I hope this post helped you to get an overview on the future currency in India