The Reserve Bank of India (RBI) has introduced a new form of digital currency called e-Rupee also known as Digital Rupee. This is India’s official digital currency, similar to cryptocurrencies like Bitcoin. However, unlike decentralized cryptocurrencies, e-Rupee is centralized and regulated by RBI.
E-Rupee aims to make financial transactions more efficient. It works just like physical cash but in a digital form. You can store e-Rupee in a digital wallet and use it for transactions.
Compared to normal UPI or wallet transactions, e-Rupee provides direct settlement with the central bank. There is no need for intermediaries like banks.
The pilot project is currently being tested by RBI. If successful, e-Rupee has the potential to transform digital payments in India. Overall, e-Rupee represents an innovative step by RBI to explore the future of money.
Table of Contents
What is e-Rupee?
e-Rupee is India’s sovereign-backed digital currency issued by the Reserve Bank of India (RBI). It functions similarly to physical banknotes, allowing citizens, establishments, and the government to store and transfer value. Just like physical currency, e-Rupee is a legal tender that can be used for various transactions.
How does Digital Rupee work?
The Digital Rupee operates on a centralized system, similar to other cryptocurrencies like Bitcoin and Ethereum. However, unlike these cryptocurrencies, the Digital Rupee is issued and regulated by the Reserve Bank of India. This ensures that the currency remains stable and secure.
When we make a transaction using the Digital Rupee, the amount is deducted from our bank account and credited to the recipient’s account. The entire process is facilitated by the RBI through its digital infrastructure. This eliminates the need for physical cash or coins, making transactions more convenient and efficient.
How E Rupee is Different from Bitcoin Or Other Crypto Currencies?
Unlike Bitcoin, which is decentralized and operates on a public blockchain, e-Rupee is a centralized currency that uses a private blockchain. Being backed by the RBI, e-Rupee offers more control and stability compared to cryptocurrencies like Bitcoin or Ethereum. Additionally, while cryptocurrencies are not legal tenders in India, e-Rupee holds the status of a legal tender.
Physical Appearance
e-Rupee does not have a physical existence. It exists as a code piece in the RBI server. However, for familiarity, the RBI has provided pictures of e-Rupee in denominations that mirror physical notes and coins. These denominations range from 50 paise to 2000 rupees, just like their physical counterparts.
Using e-Rupee
To use e-Rupee, you need to download a digital rupee app from your bank. Different banks may have variations in the app’s user interface, but the underlying functionality remains the same. After downloading the app, you can register and set up a biometric PIN or pattern for security. You can then link your bank account, add a wallet PIN, and start using e-Rupee for transactions.
Adding and Transferring Money
To add money to your e-Rupee wallet, you can load funds from your linked bank account or other UPI apps. However, it’s important to note that high-denomination notes like the 2000 rupee note may only appear in your e-Rupee wallet but cannot be obtained from banks. When transferring money to another individual, you can use the recipient’s phone number or scan their QR code. Transactions can be made with ease, and the recipient’s wallet will reflect the received amount.
Privacy and Security
e-Rupee transactions offer a certain level of anonymity, especially for lower-value transactions. While wallets and UPI transactions may have some level of tracking, e-Rupee transactions are not individually tracked. However, the RBI can access transaction data for regulatory purposes and maintain overall transparency in the blockchain.
Benefits of e-Rupee : Digital Rupee BenEfits
– Convenience and Accessibility: e-Rupee does not require physical cash or coins. It can be transferred digitally using mobile phones or devices. This makes transactions much more convenient. Additionally, anyone can use e-Rupee, even those without bank accounts, increasing accessibility to digital payments.
– Security : e-Rupee utilizes blockchain technology which acts like a digital ledger to prevent tampering, fraud, and double-spending. This enhances security and trust in transactions.
– Cost Reduction : e-Rupee removes the need for intermediaries like banks and payment gateways, reducing associated transaction fees and costs. This makes small value payments more feasible.
– Financial Inclusion : By providing a digital currency, e-Rupee can bring unbanked and rural populations into the formal financial system. This promotes financial inclusion.
– Energy Efficiency : e-Rupee is digital, so it avoids the resources required to print, manage and distribute physical currency. This makes it more energy efficient.
– Cross-border Transactions : e-Rupee enables direct cross-border transactions between central banks. This simplifies international remittances and trade.
– Limited Anonymity : e-Rupee offers pseudonymity for small value transactions. This provides some privacy to consumers.
Key differences between e-Rupee and UPI: Digital Rupee Vs UPI
- Nature: e-Rupee is a digital form of the Indian rupee issued by RBI. UPI is a payment platform that facilitates money transfers between bank accounts.
- Authority: e-Rupee is issued and regulated by RBI. UPI was created by NPCI with participation from multiple banks.
- Use Cases: e-Rupee aims to digitalize all monetary transactions including cross-border. UPI focuses on domestic retail and merchant payments.
- Structure: e-Rupee uses a centralized, controlled infrastructure to ensure oversight. UPI has a decentralized open architecture that provides flexibility.
- Similarity to Money: e-Rupee is a digital fiat currency, so it is money itself. UPI facilitates transfer of money stored in bank accounts.
- Settlement: e-Rupee allows instant settlement between parties. UPI follows bank settlement cycles.
- Anonymity: e-Rupee is planned to provide some anonymity for small transactions. UPI transactions are not anonymous.
- Form: e-Rupee is denomination based. UPI transactions use money amounts.
- Interest: e-Rupee stored in a wallet won’t earn interest like cash. Money in bank accounts can earn interest.
Understanding settlement process of e-Rupee and UPI:
From the consumer perspective, transferring money via UPI or e-Rupee looks similar – like paying Rs 200 to a cab driver through a mobile app.
However, the backend settlement is different. With UPI, the amount gets deducted from the payer’s account and credited to the payee’s account instantly on the app interface. But the actual transfer between the banks happens later during batch settlement.
With e-Rupee, when Rs 200 is paid to the merchant, the e-Rupee tokens are directly exchanged between the payer and payee in real-time. This immediately updates both sides of the ledger and finalizes the settlement.
So e-Rupee payment is like handing a Rs 200 note to the merchant, while UPI is like an IOU (IOU stands for “I Owe You”.) that gets settled later between the banks in batches. e-Rupee enables instant settlement while UPI follows a deferred settlement process.
Challenges and Opportunities of Digital Rupee
While the Digital Rupee presents a promising future for the Indian economy, there are some challenges that need to be addressed. One of the key challenges is the profitability of banks. With the shift towards digital transactions, banks may see a decrease in their profitability due to the reduction in transaction costs.
However, this challenge can be turned into an opportunity by exploring innovative business models and revenue streams. Banks can offer value-added services to their customers, such as financial planning and advisory services, to offset the potential loss in transaction revenue.
RBI Link of Digital Rupee E Rupee (CBDC- Central Bank Digital Currency) : https://rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=1218
FAQs about India’s e-Rupee: India’s Official Digital Currency
What is e-Rupee or Digital Rupee ?
e-Rupee is India’s sovereign-backed digital currency issued by the Reserve Bank of India (RBI). It serves as a digital alternative to physical currency, allowing users to store and transfer value electronically.
How does e-Rupee work?
e-Rupee operates on a centralized system regulated by the RBI. Transactions are facilitated through a digital infrastructure, deducting amounts from the payer’s bank account and crediting them to the recipient’s account in real-time.
How is e-Rupee different from Bitcoin?
e-Rupee differs from Bitcoin in being centralized and regulated by the RBI. It uses a private blockchain, providing more control and stability. Additionally, e-Rupee holds legal tender status in India, unlike decentralized cryptocurrencies.
Does e-Rupee have a physical form?
No, e-Rupee exists as a code piece on the RBI server. However, the RBI has provided visual representations of e-Rupee in denominations mirroring physical notes and coins.
How can I use e-Rupee?
To use e-Rupee, download a digital rupee app from your bank, register, set up security features, link your bank account, and start using it for transactions. Money can be added through linked bank accounts or other UPI apps.
What are the privacy and security features of e-Rupee?
e-Rupee transactions offer a certain level of anonymity, especially for lower-value transactions. The blockchain technology ensures security by preventing tampering, fraud, and double-spending.
What are the benefits of using e-Rupee?
e-Rupee offers convenience, security, cost reduction, financial inclusion, energy efficiency, and facilitates cross-border transactions. It provides pseudonymity for small value transactions, enhancing privacy.
How is e-Rupee different from UPI?
e-Rupee is India’s digital currency issued by the RBI, while UPI is a payment platform for money transfers between bank accounts. e-Rupee focuses on various monetary transactions, including cross-border, while UPI is geared towards domestic retail and merchant payments.
How does the settlement process differ between e-Rupee and UPI?
e-Rupee allows instant settlement between parties, akin to handing cash to the recipient. UPI, on the other hand, follows a deferred settlement process, deducting amounts instantly but settling between banks later in batches.
What challenges and opportunities does e-Rupee present?
e-Rupee may pose challenges to banks’ profitability due to reduced transaction costs. However, this challenge can be turned into an opportunity by exploring innovative business models and offering value-added services to customers, such as financial planning and advisory services.
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