Digital payments have made our lives easy in more ways than one. An app on your phone is now your wallet, literally and figuratively. The introduction of the Unified Payments Interface (UPI) has accelerated the growth of the digital payments sector in India. As per data, in November 2022, UPI processed 730 crore transactions, amounting to Rs 11.90 trillion. Now, the Reserve Bank of India has announced the pilot phase of India’s first digital currency to further accelerate the movement towards a cashless economy. E-rupee, launched on November 1, 2022, is based on blockchain technology and is also called digital rupee or central bank digital currency (CBDC).
What is e-rupee?
E-rupee is the digital equivalent of currency notes. The objective behind it includes reducing costs associated with printing physical currency and achieving a cashless economy. There is no regulatory risk associated with e-rupee, as it will be recognized as a legal tender across India.
Types of e-rupee
Pilot versions of e-rupee have been launched for wholesale and retail segments in India. There are two types of e-rupee – retail CBDC (CBDC-R) and wholesale CBDC (CBDC-W.) The CBDC-R will be made available to the public, including consumers, non-financial businesses and private firms. It will replace cash in retail payments.
Meanwhile, certain financial institutions will use CBDC-W for interbank transfers or other wholesale transactions.
Features of e-rupee
RBI will introduce e-rupee in the same denominations as physical currency notes. Here are some notable features of the new digital currency:
- E-rupee is a legal, safe and regulated mode of payment
- RBI will issue e-rupee based on its monetary policy
- E-rupee can be easily converted to physical cash at a bank
- There is no requirement for a bank account to use e-rupee. Anyone can use this fungible legal money.
Benefits of e-rupee
There are huge costs associated with minting physical money, which e-rupee can reduce significantly. It will also improve the security concerns around physical money. The government can monitor all e-rupee transactions and spot any illegal exchange of money within or beyond the country. Understanding e-rupee transaction patterns can also help the government design its budget and economic strategies.
How it works
The pilot phase of e-rupee includes four banks – the State bank of India, ICICI bank, Yes bank and IDFC bank. Interested individuals can approach the banks to purchase e-rupee. It will be issued and stored on a digital wallet that the users must download on their mobiles. Once e-rupee is stored in this wallet, users can make person-to-person payments or merchant bill payments. Users can transfer e-rupee to their savings or deposit account, or convert it to physical currency.
Phase-wise launch of e-rupee
The RBI has not completed the rollout of e-rupee yet. It is being launched in phases, and additional features and changes will be added based on feedback from the pilot phase. The cities participating in the pilot phase are Bengaluru, Mumbai, Bhubaneswar and New Delhi.
Four more banks will be included in the second phase – Bank of Baroda, Union Bank of India, Kotak Mahindra Bank, and HDFC Bank. The next phase will include cities such as Hyderabad, Ahmedabad, Indore, Guwahati, Lucknow, Patna, Gangtok, Kochi, and Shimla. The government has not yet revealed the second phase’s dates.
E-rupee will enable safer transactions, reduce the costs associated with minting currency and aid in India’s economic development. A well-planned and phase-wise approach to e-rupee adoption will ensure that all relevant issues are tackled before it is adopted across the country.