e-Rupee (e₹)- Central Bank Digital Currency (CBDC) of India 

e-Rupee is the digital rupee launched by the Reserve Bank of India on December 1, 2022.  The Central Bank Digital Currency (CBDC) of India is launched on a pilot basis and is represented by the symbol e₹. E-Rupee will be offered by a select set of private and public banks initially in a few major cities. The digital currency, will supplement physical currency and will be used for both person-to-person and person-to-merchant transactions.

What is e-Rupee (e₹)?

e-Rupee is the digital version of the physical currency.  The digital currency will be in digital form and will be stored in a digital wallet with the RBI in electronic form. Like the physical currency, e-rupee too will be a legal tender and can be exchanged for goods and services. However, the transaction will take place from one wallet to another wallet. Therefore, digital wallet for digital rupee is necessary for the payer of the digital currency and receiver of the digital currency. 

Digital rupee, though maintained in a wallet extended by banks, is not similar to deposits with banks.  For deposits, interest is paid by banks. However, e-rupee in digital wallet will not receive interest.  It is just like cash with an individual and wallet is replacing the purse. However, e-rupee can be used for opening deposits and deposits can be converted into digital rupee. 

e-Rupee, in the form of digital token, is available in the same denominations of paper currency and coins. The e₹ which also is a legal tender is distributed through banks and customers have to download e-Rupee Apps provided by their banks into their smartphones. The digital wallets can be accessed through the App. e₹ can be used for both Person to Person (P2P) and Person to Merchant (P2M) transactions. QR codes at payment locations will facilitate payment in e-Rupee. 

e₹-R represents e-Rupee -Retail and e₹-W represents e-Rupee-Wholesale. 

Why is RBI issuing e-rupee (digital rupee)? 

Crypto currencies like bitcoins have been finding acceptability among public across the globe and they have been receiving wide acceptability. However, features like issuance by private players, lack of endorsement by central banks, high volatility in the price, usage of crypto currencies for settling illegal activities etc have been posing challenges for governments and central banks. In India, crypto currencies are not permitted for transactions. At the same time, crypto currencies have been emerging as a medium for transactions across borders and offering many conveniences.  Digital currency in the form of e-Rupee imbibes many positives of the cryptos but avoids the negatives like volatility, non-traceability etc.  Digital rupee may eliminate many draw backs associated with physical currency like high cost of issuance and maintenance etc. Further, e-Rupee will support faster migration to digital banking and cashless society.  

What are the major risks associated with digital currency (e-Rupee)? 

For banks in India, deposit is the major raw material for carrying out lending activities. During law interest rate regimes, public may convert deposits into e-Rupees as there may not be substantial loss from interest income. This process may impact banking activities as deposits may be reduced. 

Banking sector in India is highly regulated. Though there have been instances of bank failures, intervention of the regulator has always prevented systemic failures. When digital wallet become common and familiar, regulators and banks ought to be more cautious about the resilience of banking system and strength of bank balance sheets. Failure of a bank may impact the collective behaviour of public and they may convert deposits with banks into digital currencies resulting in runs on banks. The fact that deposits up to Rs. 5,00,000/- held in same capacity per bank only is covered by DICGC, may prompt impulsive customers to withdraw deposits with banks and store in digital currencies.   

e-Rupee may leave sufficient traces for the regulator to track usage of money. This will clean the system. At the same time, many fear that too much regulation and fear of watchful eyes may deter people from taking risks at the cost of economic growth. 

What is the present status of pilot project of e-Rupee (e₹)?

The pilot project was initially restricted in four cities, viz., Mumbai, New Delhi, Bengaluru and Bhubaneswar. Subsequently, the list of centres was revised to include Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. Similarly, initially the service was extended through four banks, viz., State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank. More banks were added subsequently and now five more banks, viz., Bank of Baroda, Federal Bank, Union Bank of India, HDFC Bank and Kotak Mahindra Bank are offering the wallet facility. 

The launch of the digital rupee may aid the digital transformation of the country further. E-Rupee will support ease of doing business and strengthen the payment system of the country.