How the e-rupee will work

• The Reserve Bank of India (RBI) recently launched the Central Bank Digital Currency (CBDC) — digital rupee or e-rupee (e₹) — for the common man.
• Will cover 4 cities initially — Mumbai, New Delhi, Bengaluru and Bhubaneswar

CBDC or the digital rupee

• A legal tender issued by the RBI in digital form
• Same as the fiat currency
• Exchangeable one-to-one with the fiat currency
• A fungible legal tender, for which holders need not have a bank account
• Will appear as ‘liability’ (currency in circulation) on the RBI’s balance sheet
• In the form of a digital token representing a claim on the central bank
• Will effectively function as the digital equivalent of a banknote
• Can be transferred electronically from one holder to another
• Token CBDC - a “bearer-instrument” like a banknote

Mechanism to use e-rupee

• Similar to paper currency and coins
• Distributed through similar intermediaries like banks
• Transacted through a digital wallet and stored on mobile devices
• Transactions can be both:
• person to person (P2P)
• person to merchant (P2M) through QR codes
• Can be withdrawn from bank

Types of e-rupee based on usage and the functions:

• Retail e-rupee
• An electronic version of cash primarily meant for retail transactions
• Can potentially be used by almost everyone,
• Can provide access to safe money for payment and settlements
• Wholesale CBDC
• Designed for restricted access to select financial institutions.
• Can transform the settlement systems for financial transactions undertaken by banks in the government securities (G-Sec)
• Can make the capital market more efficient and secure

Benefits of e-rupee

• Reduced dependency on cash
• Higher seigniorage due to lower transaction costs
• Reduced settlement risk
• Can replace cash usage
• Can reduce the cost of printing, transporting, storing and distributing currency
• Reduces settlement risk in the financial system
• No need for interbank settlement
• Real-time and cost-effective globalization of payment systems
• Spurs innovation in cross-border payments

Difference from cryptocurrency

• Not commodities or claims on commodities
  • They have no intrinsic value.
• Do not represent any person’s debt or liabilities - no issuer
• Not money
• Not backed by the central bank

Vulnerability to cyber-attacks

• Faces similar risk like existing payment systems
• Cybersecurity considerations will need to be taken care of, both for the item and the environment

Prelims Takeaway

• CBDC