What is digital rupee or e-rupee ?
The e-Rupee is a type of digital token that stands in for legal money, according to the RBI. The digital Rupee is issued in the same denominations as paper money and coins, unlike other cryptocurrencies. Two categories of CBDC are:
Retail (CBDC-R): Retail CBDC might be accessible to everyone.
Wholesale (CBDC-W) is intended for specific financial institutions with limited access.
How will digital rupee work ?
The RBI explained that consumers and businesses will receive electronic rupees, or e-Rupees, through middlemen like banks. Through a digital wallet provided by the qualified banks and kept on mobile phones or other devices, users would be able to conduct transactions using e-Rupee.
The central bank further clarified that both person-to-person (P2P) and person-to-merchant transactions in digital rupee are possible (P2M). Users will be able to conduct online-like transactions utilising QR codes displayed at merchant locations to pay using e-Rupee. “The e-Rupee 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,” the official RBI release stated.
The RBI further stated that the pilot will evaluate the "robustness of the entire process of digital rupee generation, distribution, and retail usage in real-time." Future pilots will test various aspects and uses of the e-Rupee token and architecture depending on the lessons learned from this one.
List of banks and cities eligible in first pilot phase
The pilot would initially start with four banks in only four locations for the first phase: State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank. Mumbai, New Delhi, Bengaluru, and Bhubaneswar are among these cities. RBI announced that four more banks will join the pilot, including Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank.
The service will eventually be expanded to a large number of additional Indian cities, including Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. The facility will later spread to other regions of the nation. The official release date has not yet been announced.
Difference between cryptocurrency and digital rupee
A cryptocurrency is a decentralised digital asset and a medium of exchange based on blockchain technology. However, it has mostly been controversial because of its decentralised character, which means that it operates without the intervention of any middleman such as banks, financial organisations, or central agencies. On the other hand, the Reserve Bank of India (RBI) will issue Central Bank Digital Currency (CBDC) that would be accepted as legal cash online.
“The digital rupee will be different from Bitcoin, Ethereum and other cryptocurrencies in the sense it will be backed by the government. Secondly, having an intrinsic value on account of government backing, the digital rupee will be equivalent to holding a physical rupee equivalent," said Manoj Dalmia, Founder and Director, Proassetz Exchange.
Benefits of digital rupee
The digital rupee will improve efficiency and transparency with blockchain technology.
Real-time tracking and ledger maintenance will also be possible with blockchain technology.
Both wholesale and retail clients will have constant access to the payment system.
Indian buyers can pay without the use of a middleman.
Lower transaction costs.
Account settlements in real time.
To use a digital rupee, you don't need to open a bank account.
Swift international transfers.
No volatility risk because the RBI will support it.
In contrast to paper money, the digital rupee will always be portable.
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