|| Digital Rupee || Central Bank Digital Currency || Wholesale Segment || RBI || E-Rupee ||
The RBI has decided to first conduct a pilot rollout of the retail digital rupee. The central bank has identified eight banks for the project that will happen in two phases. The first will begin with four banks, State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank.
Digital Rupee-The Reserve Bank of India (RBI) has commenced its first pilot project to implement Central Bank Digital Currency (CBDC) in the Wholesale Segment(e₹-W) for secondary trade in government securities (G-secs) beginning on November 1, 2022.
Nine banks have been approved by the RBI for the e₹-W pilot launch – 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 Bank.
In introducing the digital rupee/CBDC, the RBI aims to “bolster India’s digital economy, enhance financial inclusion, and make the monetary and payment systems more efficient.” The central bank has clarified that the “CBDC is aimed to complement, rather than replace, current forms of money and is envisaged to provide an additional payment avenue to users, not to replace the existing payment systems.”
Below is a brief summary of how regulators’ understanding of the digital rupee and its use case scenarios has developed in India.
What is the digital rupee?
A Central Bank Digital Currency(CBDC) or Digital Rupee is a digital version of Currency notes issued by central bank. So we can say that CBDC or digital rupee(e₹) is a new variant of central bank money different from physical cash or central bank reserve/settlement accounts.
The RBI defines the digital rupee as the legal tender issued by the central bank in a digital form and postulates following features for a unit to be called an Indian digital rupee:
- Digital rupee is a sovereign currency issued by the RBI in alignment with their monetary policy
- It appears as a liability on RBI’s balance sheet
- It must be accepted as a medium of payment, legal tender, and a safe store of value by all citizens, enterprises, and government agencies.
- Digital rupee must be freely convertible against commercial bank money and cash
- It must be a fungible legal tender for which holders need not have a bank account
What are the different types of digital rupee?
Based on the usage and the functions performed by the digital rupee and considering the different levels of accessibility, digital rupee can be classified into two broad categories:
- General purpose or retail (CBDC-R): They are an electronic version of cash primarily meant for retail consumption. They can be available for use by all private sector entities, non-financial consumers, and businesses.
- Wholesale (CBDC–W): They are designed for restricted access by financial institutions. They could be used for improving the efficiency of interbank payments or securities settlement.
What is the Significance of Digital Rupee (e₹)?
- With CBDC, India is targeting to make remarkable progress in the world’s rapidly advancing adoption of digital currencies.
- RBI-backed digital rupee systems will further propel India’s digital economy, and make the monetary and payment systems more efficient.
- Reduction in cost associated with physical cash management.
- To further the cause of digitization to achieve a less cash economy.
- Supporting competition, efficiency and innovation in payments.
- Expand the usage of digital rupee for improvement in cross-border transactions.
- Safeguard user trust in the national currency by proliferation of crypto assets.
What is Difference between Digital Rupee and Other form of Digital Money?
While money in digital for is being used in India as a book entries in bank account on commercial bank ledger and it is liability of commercial bank.
The digital rupee differ from other form of digital money available to public that it would be liability of RBI and not of commercial bank.
What is Difference between Digital Rupee & Cryptocurrency?
- Cryptocurrency- It is a decentralized digital asset and a medium of exchange based on blockchain technology. Being decentralized means there is intermediary such as banks, financial institutions or central authority to back up.
- Digital Rupee(e₹)- CBDC or Digital Rupee(e₹) is issued by the RBI and will function as government-backed money in digital form.
Frequently Asked Questions (FAQ)
Q– What is use of Digital Rupee?
Ans- It is interchangeable currency and value at par with Fiat currency.
Q- How is Digital rupee different from UPI?
Ans- UPI is a bank-to-bank transfer, so banks knows who you are paying and how much, whereas the Digital rupee is similar to cash and therefore it is directly transferred from one wallet to another without leaving any audit trail.
Q- How is digital rupee different from cryptocurrency?
Ans- Cryptocurrency is a decentralized form of money with no intermediaries in the transaction process.. While digital rupee is centralised form of money issued, guaranteed and regulated by RBI.