India is one of the first countries in the world to launch its own central bank digital currency (CBDC), the e-Rupee, which aims to transform the way people transact and access financial services. In this article, we will explore what is e-Rupee, how it works, what are its benefits and challenges, and what it means for the future of India’s economy.
What is e-Rupee?
The e-Rupee is a digital version of the Indian Rupee, issued by the Reserve Bank of India (RBI) as a legal tender. It is not a cryptocurrency, but a tokenised representation of the physical currency that can be stored and transferred electronically using a digital wallet. The e-Rupee is backed by the RBI and has the same value as the physical Rupee.
The e-Rupee was launched on 1 December 2022, after being proposed in January 2017 by a high-level inter-ministerial committee. The e-Rupee uses blockchain technology, which is a distributed ledger that records transactions in a secure and transparent manner. The e-Rupee has two variants: e-Rupee for Wholesale (e₹-W) for interbank settlements, and e-Rupee for Retail (e₹-R) for consumer and business transactions.
How does e-Rupee work?
To use e-Rupee, one needs to have a digital wallet that is authorised by the RBI. The digital wallet can be accessed through a mobile app or a web portal, and can be linked to a bank account or an Aadhaar number. The user can load e-Rupees into the wallet by transferring money from their bank account or by exchanging physical cash at designated outlets. The user can then use the wallet to make payments to merchants or other users who accept e-Rupees, by scanning a QR code or entering a verification code. The transaction is completed in real-time, without any intermediaries or fees.
The e-Rupee transactions are recorded on the blockchain network, which is maintained by the RBI and its authorised entities. The blockchain ensures that the transactions are secure, traceable, and immutable. The RBI also monitors the supply and circulation of e-Rupees, and can issue or withdraw them as per the demand.
What are the benefits of e-Rupee?
The e-Rupee has several advantages over the physical currency, such as:
- It reduces the cost of printing, transporting, and storing physical cash, which amounted to ₹49.8 billion in 2021-22.
- It enables faster, cheaper, and more convenient payments, especially for small-value transactions and remote areas.
- It enhances financial inclusion, as it can reach people who do not have access to bank accounts or digital payment platforms.
- It improves transparency and accountability, as it can prevent tax evasion, money laundering, counterfeiting, and fraud.
- It supports innovation and digitisation, as it can enable new business models and use cases based on smart contracts and programmable money.
What are the challenges of e-Rupee?
The e-Rupee also faces some challenges and risks, such as:
- It requires adequate digital infrastructure, such as internet connectivity, smartphones, and QR code scanners, which may not be available or affordable for everyone.
- It poses privacy and security concerns, as it can expose users’ personal and financial data to hackers or government surveillance.
- It may affect monetary policy and financial stability, as it can alter the demand for physical cash and bank deposits, and create volatility in exchange rates and interest rates.
- It may face legal and regulatory uncertainties, as it may conflict with existing laws and regulations on currency issuance, taxation, consumer protection, data protection, etc.
- It may face competition from other digital currencies, such as cryptocurrencies or stablecoins, which may offer more features or benefits to users.
What is the future of e-Rupee?
The e-Rupee is still in its early stages of development and adoption. The RBI has launched pilot tests for both wholesale and retail versions of e-Rupee in select sectors and regions. The RBI has also invited feedback from various stakeholders, such as banks, payment service providers, merchants, consumers, etc., to improve the design and functionality of e-Rupee. The RBI has also stated that it will coexist with physical cash and other digital payment modes.
The e-Rupee has the potential to revolutionise India’s payment system and economy. It can bring efficiency, convenience, inclusion, transparency, and innovation to India’s financial sector. It can also enhance India’s global competitiveness and leadership in the emerging field of digital currencies.