• Digital rupee to be available in Mumbai, New Delhi, Bengaluru, Bhubaneswar initially; more cities will be added later


  • Retail customers and merchants in four cities, including Mumbai and Delhi, will be able to use digital rupee (e₹-R), or e-rupee, from December 1 with the Reserve Bank of India (RBI) announcing the launch of the much-awaited first phase of the digital form of the Indian currency for the retail segment.


  • The pilot would initially cover four cities — Mumbai, New Delhi, Bengaluru and Bhubaneswar — and later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla, the central bank said on Tuesday. The scope of the pilot may be expanded gradually to include more banks, users and locations as needed, the RBI said.


  • The pilot would cover select locations in a closed user group (CUG) comprising participating customers and merchants, the RBI said. The e₹-R would be in the form of a digital token that represents legal tender.


  • The RBI has identified eight banks for phase-wise participation in this pilot. The first phase will begin with four banks — State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank in four cities across the country. Four more banks — Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank — will join this pilot subsequently, it said.


  • E-rupee would be issued in the same denominations that paper currency and coins are currently issued. It would be distributed through intermediaries, i.e., banks. “Users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones and devices, according to the central bank.


  • Transactions can be both person-to-person (P2P) and person-to-merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations. “The e₹-R would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks,” the RBI said.


  • According to the central bank, the pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. “Different features and applications of the e₹-R token and architecture will be tested in future pilots, based on the learnings from this pilot,” it said.


  • On November 1, the RBI took a major leap towards making the country’s monetary and payment systems more efficient with the launch of digital rupee for the wholesale segment to settle secondary market transactions in government securities.




  • Based on the usage and the functions performed by the digital rupee and considering the different levels of accessibility, RBI has demarcated the digital rupee into two broad categories – general purpose (retail) and wholesale.


  • Retail e-rupee is an electronic version of cash primarily meant for retail transactions. It will be potentially available for use by all — private sector, non-financial consumers and businesses — and can provide access to safe money for payment and settlement as it is a direct liability of the central bank. Wholesale CBDC is designed for restricted access to select financial institutions. It has the potential to transform the settlement systems for financial transactions undertaken by banks in the government securities (G-Sec) segment, inter-bank market and capital market more efficient and secure in terms of operational costs, use of collateral and liquidity management.


  • ADVANTAGES OF E-RUPEE


  • The RBI had earlier said the key motivations for exploring the issuance of CBDC in India among others include reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency and innovation in the payments system. It will add efficiency to the settlement system and boost innovation in cross-border payments space and provide the public with uses that any private virtual currencies can provide, without the associated risks.




  • A Central Bank Digital Currency (CBDC) or Digital Rupee is a digital form of currency notes issued by a central bank. Digital currency or rupee is an electronic form of money, that can be used in contactless transactions. Presenting Union Budget 2022, Finance Minister Nirmala Sitharaman announced that the Reserve Bank of India (RBI) would be rolling out its digital currency soon.


  • CBDC can be classified into two types


  • 1) Retail (CBDC-R): Retail CBDC would be potentially available for use by all


  • 2) Wholesale (CBDC-W) is designed for restricted access to select financial institutions.




  • A cryptocurrency is a decentralised digital asset and a medium of exchange based on blockchain technology. However, it has primarily been controversial due to its decentralised nature, meaning its operation without any intermediary like banks, financial institutions, or central authorities. On the Contrary, Central Bank Digital Currency (CBDC) issued by the Reserve Bank of India (RBI) will be a legal tender in a digital form.


  • The digital rupee will be different from Bitcoin, Ethereum and other cryptocurrencies in the sense it will be backed by the government. Secondly, having an intrinsic value on account of government backing, the digital rupee will be equivalent to holding a physical rupee equivalent


  • Benefits of Digital Rupee Apart from reducing the transaction cost, having a digitised currency will make it easier for governments to access all transactions happening within the authorized networks. It will become impossible to avoid the gaze of the government, thus subjecting every transaction to relevant laws within the country. Hence, the government will have better control over how money leaves and enters the country, which would allow them to create a space for better budgeting and economic plans for the future, and overall a much safer environment


  • Another benefit of digital currency is that they do not get torn, burnt or physically damaged. Neither can they be physically lost. The lifeline of a digital currency will be indefinite compared to physical notes,


  • The launch of CBDC has been perceived as a commendable step by the Reserve Bank of India to transform the very nature of money and its functions. Digital currency will fuel financial inclusion and bring in resiliency and efficiency to the payments space. CBDC and the central bank’s RTGS will jointly augment the Delivery-Versus-Payment mechanism for secured and guaranteed payment and settlement of funds. CDBC interfacing with RTGS will complement the Central bank's vision of interoperability, transparency, accessibility and financial inclusivity.


  • The RBI has been exploring the pros and cons of a central bank digital currency for some time and is working towards a strategy to implement it in a phased manner, it said earlier this month.




  • As per The Oddball report, India is among the costliest countries for cash transactions around the world. "The residents of Delhi spend 60 lakh hours and ₹9.1 crore just to obtain cash," the report observed.


  • The Oddball cited research by Visa which noted that digital payments can reduce the cost of cash from 1.7% to 1.3% of the GDP, "saving India ₹4.7 lakh crores by 2025".


  • Further, The Oddball mentioned a few vital queries about India's Digital Rupee. Here are some of them:


  • What is the e-rupee or digital rupee? The digital rupee is cash plus digital minus banks. So, if someone will make a payment, tokens issued by the RBI will be transferred via the blockchain network. There will not be any involvement of commercial banks.


  • Why e-rupee when we have UPI? Despite the UPI boom, India's cash circulation touched a new high in October this year at ₹30.9 lakh crore. This was 72% higher than pre-demonetization, the Oddball report claimed.


  • Since, the UPI works only when someone has a bank account and has access to the internet, in such case e-rupee will become more valuable. Digital currency systems will be used offline and without a bank account.


  • Besides, international business transactions take 2-3 days for settlement due to time difference issues. CBDC can eliminate this inefficiency by making it real-time.


  • India is the world's largest recipient of foreign remittances worth $87 billion as of 2021, the report said.


  • Can RBI's CBDC structure fail? The Oddball reported that the digital currency system failed in Ecuador. It was one of the first countries to launch a digital currency but was forced to call it off within three years as more than 70% of the country's population did not open a CBDC account. The Ecuadorian citizens did not trust the country's banking system, so they never used digital currency.


  • However, in India, as per the World Bank, 32% of people cited 'lack of trust' as the reason for not opening a bank account.


  • With the advent of CBDC for retailers, Indians will not need to maintain savings in banks to make digital payments.


  • This might lead to a drop in demand for current and saving deposits and the commercial bank might also lose a low-cost source of funding.


  • Since the project is at the pilot stage, the experts will try to plug in the gaps to make India a cashless economy.