RBI's proposed digital rupee - 10 things to know

 RBI's proposed digital rupee - 10 things to know

The e-rupee or digital rupee is a digital version of the Indian rupee that RBI is exploring.

The digital rupee is still in the planning stage and its final shape may change depending on the outcome of the RBI's pilot trials.

Following the setting up of a working group to study the possibility of a Central Bank Digital Currency (CBDC) in India in 2020, the RBI issued a concept note on Digital Rupee (e-Rupee) on 7 October 2022. The Government of India also announced The launch of CBDC in its 2022 Union Budget. According to the RBI concept note, the central bank will start a pilot launch of the digital rupee in India. Here we explain what the proposed digital rupee could mean for you, as explained in the RBI concept note. Note, the digital rupee is still in the planning stage and its final shape may change depending on the outcome of the pilot trials of RBI.

What is e-rupee (digital rupee)?

The e-rupee or digital rupee is a digital version of the Indian rupee that RBI is exploring. RBI has proposed to issue two versions - Wholesale for Interbank Settlement and Retail for Public. As per the indirect model proposed by RBI, you will keep the digital rupee in a wallet with a bank or service provider.

Is this a cryptocurrency?

The underlying technology of the cryptocurrency (distributed ledger) may underlie some parts of the digital rupee system, but the RBI is yet to take a decision on this. However cryptocurrencies like bitcoin or ethereum which are 'private' in nature. Digital Rupee, on the other hand, will be issued and regulated by the RBI.

can you mine it?

No, RBI will issue it. It cannot be mined like bitcoin. This means that the digital rupee is unlikely to be affected by the environmental and energy use concerns associated with bitcoin.

Who will issue it?

RBI has proposed a model where it (RBI) issues e-rupee but commercial banks distribute it.

How do you transfer e-rupee

The retail version of Digital Rupee is token based. Broadly speaking, this means, you find out the recipient's public key (think of it like an email address) and transfer money to them using your private key (essentially, a password).

Will it earn interest?

As per RBI's concept note, no. They are not in favor of e-rupee with interest. Why? Because people can withdraw money from banks and convert it into digital rupees – which causes banks to fail

Will it be anonymous?

A bank transfer is passed from one identified person to another. A cash transfer on the other hand is anonymous - you don't know who held that particular rupee note in the past. For e-rupee, the RBI concept note has proposed partial anonymity where small amounts can be anonymous but not large amounts.

Why should you keep it?

Facility. Transacting in e-rupee can eliminate the inconvenience of carrying physical notes and coins. In addition, the RBI has outlined some benefits for the country as a whole, such as financial inclusion, innovation and reducing the cost of cash transactions.

Can it be programmed?

Yes, possibly. It can be programmed to achieve objectives such as ensuring that expenditure is made only for a particular sector (eg, agriculture). Alternatively, it can be given a limited life like a voucher, allowing the RBI to stimulate demand when needed and withdraw it when not needed. These features come with trade-offs and hence RBI is yet to finalize them.

What if your trap is down?

RBI has proposed offline functionality for Digital Rupee - which means you can transact without internet. However this can lead to duplication where the same rupee is transferred to multiple people. RBI may issue limits for offline transactions to mitigate such synchronization issues or to explore some technical solutions for them.