E-rupee is a digital form of currency issued by the RBI, akin to digital currency notes. It is regulated and backed by the RBI, ensuring it has intrinsic value and is recognized as legal tender.
A recent report highlighted that there has been a significant decline in usage of r-rupee, India’s digital currency, dropping to just one-tenth of its peak in December. By December last year, pilot had achieved its target of 1 million retail transactions per day, which has declined to 1,00,000 transactions per day now.
Here’s all you need to know about e-rupee:
On December 1, 2022, the Reserve Bank of India (RBI) had launched the Central Bank Digital Currency (CBDC) — digital rupee or e-rupee (e₹).
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Explaining the concept, RBI Deputy Governor T Rabi Shankar had said, “A CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.”
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Types of CBDCs:
Central Bank Digital Currencies (CBDCs) can be categorized into two main types:
Retail CBDCs: These are designed for general public use in everyday transactions, akin to the way physical cash is used currently.
Wholesale CBDCs: These are intended for use by financial institutions for interbank settlements and other wholesale transactions, enhancing efficiency and security in large-scale financial operations.
How is digital rupee different from cryptocurrency?
E-rupee is a digital form of currency issued by the RBI, akin to digital currency notes. It is regulated and backed by the RBI, ensuring it has intrinsic value and is recognized as legal tender.
However, cryptocurrencies like Bitcoin are decentralized digital currencies that operate on blockchain technology. They are not issued or regulated by any central authority like a central bank. Their value and supply are determined by market demand and supply dynamics, often characterised by price volatility.
How to issue and acquire digital rupee?
The RBI issues digital rupee in the form of electronic tokens that mirror physical currency denominations. Here’s how the issuance process works:
The RBI issues electronic tokens of digital rupee, which are equivalent in denomination to physical currency. The central bank then distributes these tokens to commercial banks and authorized financial institutions for circulation in the economy. The transactions involving e-rupee are recorded and verified on a secure ledger system.
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Users can acquire digital rupee through various methods facilitated by authorised financial entities. Authorised financial institutions provide digital wallets that serve as secure digital storage for digital rupee.
Withdrawal and conversion:
Similar to withdrawing physical cash, users can withdraw digital rupee tokens from their digital wallets through authorized channels. The cash can be converted into digital rupee using platforms equipped with upi (unified payments interface) gateways, facilitating seamless integration with existing payment systems.
How to load and redeem e-rupee?
Users can easily load digital rupee into their wallets directly through their linked registered bank accounts.
If users prefer to use another UPI-enabled account, they can select their preferred UPI app from a list available on their phone.
After selecting the app, users need to enter their UPI pin to authorize the transaction. The specified amount is debited from their bank account linked to the selected UPI app, and the corresponding digital rupee tokens are successfully loaded into their wallet, explains Bank of Baroda, which is a registered bank for digital rupee with the RBI.
Redeeming digital rupee
Users have the flexibility to redeem or unload their digital rupee tokens back into their linked bank account. The tokens are unloaded from their wallet, and the equivalent amount is credited back to their linked bank account seamlessly.
How to use digital rupee?
Digital rupee offers convenient ways to conduct transactions:
Person-to-person:
Users can transfer money to another person’s wallet by scanning a QR code or entering their mobile number.
Person-to-merchant:
At merchant establishments, users can make payments by scanning the QR code displayed using their digital rupee wallet.
What are the advantages of using digital rupee?
Financial inclusion: E-rupee increases financial inclusion by providing easy access to digital transactions for all sectors of society, including those without traditional bank accounts.
Efficiency in transactions: It streamlines payment processes, reducing transaction times and costs compared to traditional banking methods, thereby promoting economic efficiency.
Transparency and security: Transactions made with digital rupee are recorded on a secure blockchain ledger, ensuring transparency and reducing the risk of fraud.
No manufacturing needed
Unlike physical cash, digital currency doesn’t require much expense in terms of manufacturing. Further, the e-rupee is also not prone to soiling or physical defects.
Concerns over digital rupee:
Privacy concerns: the introduction of CBDCs raises privacy issues, as transactions can be easily monitored and traced, potentially compromising one’s finance privacy, more so in countries prone to financial fraud.
Cybersecurity risks: CBDCs are vulnerable to cyber-attacks, necessitating robust security measures to safeguard the digital currency’s integrity and protect against potential breaches. Further, in countries with lower financial literacy levels, the increase in digital payment related frauds may also spread to CBDCs.
Disruption of traditional banking: the widespread adoption of CBDCs may disrupt traditional banking systems, potentially leading to challenges such as bank runs and other systemic disruptions.
