E-Rupee or India’s Digital Rupee, introduced by the Reserve Bank of India (RBI), is a pioneering initiative that embodies the evolution of currency in the digital age. As a Central Bank Digital Currency (CBDC), it is not only a digital representation of the Indian rupee but also a form of legal tender, backed by the RBI. As a fiat currency, it must be accepted for payments and debt settlement much like traditional Indian rupee.
Simply put, it is a tokenized digital version of Indian Rupee in digital wallet form
As a Central Bank Digital Currency (CBDC), it combines the reliability of the Indian rupee with the benefits of digital technology, aiming to enhance the efficiency of the payment system and promote financial inclusion.
Need for India’s digital currency
- RBI’s pilot survey on retail payment habits noted that though the volume of digital transactions occurring in India is larger than the rest of world, cash is still the preferred mode of payment.
- India has a high currency to gdp ratio.
- An official digital currency would reduce the cost of currency management while enabling real time payments without any inter bank settlement.
Why is E-rupee preferred over cryptocurrency ?
- Sovereign guarantee: cryptocurrencies pose risks to consumers. They are not legal tender while E- rupee is a legal tender backed by RBI.
- Market Volatility: Cryptocurrency’s speculative nature makes them highly volatile. For instance, the value of bitcoin fell from USD 20,000 in December 2017 to USD 3,800 in November 2018.
- Financial stability: A central bank cannot regulate the supply of cryptocurrencies in the economy.
- Money laundering: Cryptocurrencies are more vulnerable to criminal activity.
Features of E-Rupee
Security Features: Enhanced security protocols to protect against fraud and cyber threats, often leveraging blockchain or similar technologies.
- Uniquely Identifiable: Like paper currency, each unit is uniquely identifiable to prevent counterfeit.
- Transferability: It’s a digital bearer instrument that can be stored, transferred and transmitted by all kinds of digital payment systems and services.
Forms of CBDC
India’s Central Bank Digital Currency (CBDC), known as the digital rupee, is being explored in different forms to cater to various use cases.
Wholesale CBDC : Intended for interbank transactions and settlements, enhancing the efficiency of payment systems among financial institutions.
Retail CBDC : Aimed at the general public for everyday transactions, allowing consumers to use digital currency similarly to cash.
Benefits
- Financial Inclusion: With enhanced programmability, it could be used for specific purposes for end users.
- Reduced Settlement Risks: As the liability lies with RBI, it reduces settlement risks.
- Faster System: E-Rupee can increase the transmission of money from central banks to commercial banks and end customers much faster than the present system.
- Making of a regional currency: In cross border payments domain, India can take a lead by leveraging digital rupee Where NPCI has existing agreements.
Issues With India’s E- Rupee
- Privacy Concerns: Balancing user privacy can work With the need for transaction traceability poses a significant challenge.
- Cyber security Risks: Being a digital rupee, it may be vulnerable to cyber attacks.
- Impact on Traditional Banking: It may disrupt the existing banking models .Banks could face challenges in terms of deposit and lending, thereby potentially leading to instability in the financial system.
- Technology Infrastructure: Developing a robust, scalable, and secure technology infrastructure to handle transactions efficiently is crucial. This includes addressing cyber security concerns and ensuring system resilience.
In conclusion, India’s digital rupee (E-Rupee) marks a pivotal advancement in the financial landscape, aiming to enhance payment efficiency and promote financial inclusion. While it offers benefits like reduced transaction costs and improved transparency, challenges such as regulatory development, cyber security, and user awareness must be addressed. Successful implementation will rely on collaboration among the government, central bank, and stakeholders, positioning India to leverage the digital economy effectively.
