The Reserve Bank of India (RBI) issued a concept note on digital rupees (e-rupees) on October 7, 2022, following the formation of a working group to investigate the possibility of a Central Bank Digital Currency (CBDC) in India in 2020.
In its 2022 Union Budget, the Government of India also announced the establishment of a CBDC. The RBI concept note states that the central bank will begin pilot launches of the digital rupee in India. Here, we explain what the proposed digital rupee can mean for you, as outlined in the RBI’s concept note. It should be noted that the digital rupee is still in the planning stages, and its final form may change depending on the results of the RBI”s pilot trials.
What exactly is an e-rupee/digital rupee?
E-rupee, also known as the digital rupee, is a digital version of the Indian rupee investigated by the RBI. The RBI proposes two versions: wholesale for interbank settlement and retail for the general public. According to the RBI’s proposed indirect model, you will keep the digital rupee in a wallet with a bank or service provider.
Is the e-rupee considered a cryptocurrency?
The underlying technology of cryptocurrency (distributed ledger) has the potential to underpin parts of the digital rupee system, but the RBI has yet to decide on this. However, cryptocurrencies such as bitcoin and ethereum are ‘private’ in nature. The RBI, on the other hand, will issue and control digital rupees.
Can e-rupee be mined in the same way that cryptocurrencies are?
No. The RBI will print it. It cannot be mined in the same way that bitcoin can. This means that the environmental and energy use issues that have plagued bitcoin are unlikely to affect the digital rupee.
Who will be issuing e-rupees?
The RBI has proposed a model in which the e-rupee is issued by the RBI but distributed by commercial banks.
How do you send e-rupee?
Tokens are used in the retail version of the digital rupee. In general, you obtain the recipient’s public key (think of it as an email address) and send money to them using your private key (essentially, a password).
Will it generate interest?
The RBI concept note states that no. They are not interested in the e-rupee. Why? People may withdraw funds from banks and convert them to digital rupees, causing banks to fail.
Will it be treated with confidentiality?
A bank transfer is made from one person to another. A cash transfer, on the other hand, is completely anonymous; you have no idea who previously held that particular rupee note. The RBI concept note for e-rupee has proposed partial anonymity, where small amounts can be anonymous but large amounts cannot.
Why should you have an e-rupee?
Convenience is the main benefit of holding an e-rupee. Transacting in e-rupee can eliminate the need to carry physical notes and coins. Aside from that, the RBI has outlined some advantages for the country, such as financial inclusion, innovation, and lower cash transaction costs.
Is it possible to program it?
Yes, perhaps. It can be programmed to accomplish goals such as ensuring that it is only spent on a specific sector (say, agriculture). Alternatively, it could be given a limited life, similar to a voucher, allowing the RBI to stimulate demand when necessary and withdraw it when not. These features have trade-offs, so the RBI has not yet decided on them.
What if your internet connection fails?
The RBI has proposed offline functionality for the digital rupee, which means you can conduct transactions without using the internet. However, this can result in duplication, with the same rupee being transferred to multiple people. The RBI may impose limits on offline transactions to address such synchronisation issues or seek a technological solution.