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Decoding e-rupee: Is India ready to transact in digital currency?

In 2016, a government panel on digital payments, chaired by former bureaucrat Ratan Watal, first recommended studying the possibility of a central bank-issued and backed digital currency, and testing a proof of concept. However, it was only the popularity of private cryptocurrencies and stablecoins – until their recent crash – that forced the apex bank to speed up the launch of digital currencies.

In October 2021, the central bank proposed an amendment to the Reserve Bank of India Act, 1934, to enhance the scope of the definition of ‘bank note’ to include currency in digital form to the government.

In her Union Budget speech on February 1, 2022, Finance Minister Nirmala Sitharaman proposed to introduce digital rupee, using blockchain and other technologies, to be issued by the RBI starting 2022-23.

“The amendment in the RBI Act with regard to the CBDC (central bank digital currency), says that currency will also include digital currency. That is the amendment which has been brought. Therefore, in all respects, there is no difference in the eyes of law, and there is no difference in treatment between paper currency and digital currency,” said RBI governor Shaktikanta Das on December 7.

What is e-rupee?

From December 1, the RBI has launched a pilot of e-rupee retail in a closed user group with four participating banks — State Bank of India, ICICI Bank, IDFC First Bank and Yes Bank — and several merchants.

E-rupee is the CBDC issued and backed by the RBI that aims to mimic and expand on usage functions of paper currency or physical cash. It will be fundamentally different from the present UPI transactions — sans the direct involvement of banks as transactions will happen through e-wallet. The pilot for retail users follows a similar one launched for wholesale e-rupee transactions in November.

The expected benefits of e-rupee — faster settlement, lower cost of cross-border transactions, reduction in currency printing and distribution costs – are pitted against potential pitfalls including issues of privacy, data integrity, cyberattacks and disruption in deposit functions of the commercial banks.

Currently, it is only a trial restricted to a closed user group of merchants and customers in four cities of New Delhi, Mumbai, Bengaluru, and Bhubaneswar.

Several merchants like petrol pumps and organised retail stores are transacting with select customers that have been provided CBDC wallets in these cities. The scope of the pilot will be expanded gradually to cover more users in different cities.

In the initial days of the trial, users and merchants are doing a few hundreds of transactions every day, which will be increased to a few thousands. In due course, the plan is to launch a system wherein CBDC can also work in offline mode. This would help in expanding its scope and scale across the country. Direct benefit transfers by the government can also be done through e-rupee in future.

How is India placed against peers?

Globally, the eNaira in Nigeria, unveiled in October 2021, and the Bahamian sand dollar, debuted in October 2020, are two fully launched CBDCs. China, Singapore, France, Canada, Saudi Arabia, and the United Arab Emirates are among the countries conducting CBDC pilots. There were more than 100 CBDCs in research or development stages.


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