The Digital Rupee (e-Rupee) or (eINR) is the digital counterpart of physical cash, it is issued by the Reserve Bank of India (RBI) as a Central Bank Digital Currency (CBDC).
On November, 1, 2022, the Reserve Bank of India launched the first trial of the Digital Rupee (e-Rupee) in the wholesale segment for the government securities. The pilot launch of e-Rupee for retail customers went live on 01st December, 2022, in Delhi, Mumbai, Bengaluru and Bhubaneshwar.
The foundation of CBDC will be Block Chain technology.
A blockchain is essentially a collection of blocks. Each block would contain a group of transactions. Specific computers will run the CBDC’s code and store its blockchain. A token-based system would provide universal access to e-rupee along with privacy by default. Thus, individuals will be able to pay Digital Rupee to whoever they want to via app.
The RBI has initially selected nine banks to engage in the pilot project – State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank, and HSBC.
- If you are wondering how to use e-Rupee, it is not a rocket science. The process will rather be simple.
- Just like physical cash, e-rupee or digital rupee will work in similar simple denominations. For example, Rs.5/-, Rs.10/-, Rs.20/-, Rs.50/- Rs.100/-, Rs.200/-, Rs.500/-, and Rs.2000/-.
- This currency can be used for both person-to-person and person to merchant transactions.
- Additionally, these transactions will mostly be carried out via QR codes.
e-Rupee will not earn you any interest, whereas your money in Bank Savings Account will earn 3.5% interest p.a.
How it is different from UPI?
- One of the motivations behind launching a digital currency is to reduce settlement risk in the system. In the case of UPI transactions, the transfer of money involves a settlement process, where you place a request with your bank and the funds are then deducted from your account and transferred to the beneficiary’s account.
- But with e-rupee transfers, there is no intermediary. It is literally the electronic equivalent of handing cash over to another person. The money is never ‘in transit’; nor is there any need for inter-bank settlement.
- The e-rupees are simply transferred from one wallet to another and the funds become the property of the receiving party.
- The RBI has even mentioned an offline feature, which means that transactions can occur even without a mobile network. This could have serious implications for remote areas, where the penetration of digital payments has suffered.
Why was the e-Rupee introduced?
- To reduce the cost associated with physical cash management.
- Increasing the adoption of digital currency.
- Supporting financial inclusion (especially via the offline feature in remote parts of the country with poor connectivity)
- A safe digital currency without any of the risks associated with cryptocurrency.
- Unlike perfectly anonymous cash, the RBI will be able to trace the spending patterns of citizens who use CBDC.
- To explore the application of CBDC to enhance cross-border transactions.