What Is Digital Rupee (e₹)?

21 April, 2023

Despite the innovations in the digital payment sector, we continue to rely on physical cash. However, with the Reserve Bank of India (RBI) introducing the Central Bank Digital Currency (CBDC) or Digital Rupee (e₹), a completely cashless future looks attainable. In the Budget 2022-2023, the Honourable Finance Minister Nirmala Sitharaman proposed the introduction of a digital currency for a more efficient and economical currency management system. In December 2022, the RBI launched the e₹ pilot project in a few select banks. So, what is CBDC and how can it revolutionise the payment systems? Let us learn about it together here.

What is e₹?

E₹ is the digital variant of the physical cash that is circulated in the country. Like physical cash, e₹ is a legal tender that is exchangeable one-to-one.

With e₹, the RBI issues digital bank notes, called tokens, that have the same denominations as physical cash. The e₹ tokens shall be acceptable as a payment form by all citizens, entities, and government agencies. You can also convert e₹ freely against cash.

How does e₹ work?

1. Issuance
   
   With e₹ , the RBI will issue digital tokens. These digital tokens are essentially the electronic forms of cash, so they will come in fixed denominations that are currently in circulation.
   
   

2. Distribution
   
   The RBI will issue the tokens to Token Service Providers (TSPs). The TSPs will, in turn, distribute the e₹ tokens to end-users, i.e., banks, financial institutions, etc. The bank will then distribute the tokens to its customers.
   
   

3. Usage
   
   As a customer, you can convert your existing cash to e₹ through Unified Payments Interface (UPI). Most banks shall make e₹ accessible through a new application you can download on your smartphone. Currently the e₹ App is available for Android users only. You can pay for purchases by scanning the merchant's QR code (Person-to-Merchant). You can also pay another person by scanning their QR code (Person-to-Person). Essentially, the bank debits e₹ amount from your account and credits it to the third-party's account.
   
   

E₹ Vs. Cryptocurrency

Cryptocurrency is a purely virtual form of currency that does not rely on the banks to verify transactions. Instead, they use distributed public ledgers called blockchains to record transactions. Cryptocurrencies are highly secure, cost-effective and offer short settlement times. On the other hand, e₹ has the same properties of a cryptocurrency except that it is regulated by the RBI. The RBI issues e₹. However, no entity issues cryptocurrencies, making them difficult to regulate.

How e₹ can bolster India's digital infrastructure

Let us decode how going truly cashless can benefit the country and in turn benefit the end user:

• Bridging the Financial Gap
  
  While digital payment systems have been around for some time now, heavy reliance of cash continues to exist. Reasons for the same can be attributed to poor connectivity, limited infrastructure to facilitate digital payments, etc. RBI intends to support financial inclusion with low-cost and easy-to-use payment apps that can be used offline as well.
  
  

• Reduced Settlement Risk
  
  If entities fail to record and exchange the user's funds simultaneously after a transaction, it can lead to settlement risks. With e₹ , transactions take place in real-time. Therefore, the settlement risk is reduced to almost zero.
  
  

• Low Operational Costs
  
  The paper money must be accounted for and the costs are eventually borne by the users in some form or another. With the implementation of e₹ , RBI will be able to reduce the costs of printing, storing and transporting physical cash.
  
  

• Enhanced Security
  
  Digital payments carry some element of internet-based risks. However, the idea behind e₹ is for India to have its own cryptocurrency that, unlike other cryptocurrencies, is RBI-regulated. Cryptocurrencies use cryptography and quantum computing-resistant technology to fend off potential cyberattacks.
  
  

Final Note

E₹ can potentially transform the digital payment infrastructure in a way that can benefit both the Government and the citizens. Our customers can look forward to accessing the e₹ and its benefits in the near future.

Click here to download the app from the Google Play store.

Click here to read more on how CBDC works in India

​​​​​​​*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.