Digital Rupee: What Is It? How Does It Work?

Did you know that printing cash in India costs a staggering 5000 crores annually? To address this issue, countries worldwide are adopting Central Bank Digital Currencies (CBDC) – digital versions of a country’s currency issued and regulated by its central bank. CBDCs offer benefits such as increased efficiency, enhanced security, and many more. Recognising these advantages, India has introduced its own CBDC, the Digital Rupee or E-Rupee.

What is Digital Rupee?

The Digital Rupee serves as India’s Central Bank Digital Currency, overseen and issued by the RBI. It operates on par with existing currencies. Let’s explore how this innovative currency will transform India’s financial landscape.

How E-Rupee Works

The Digital Rupee, or E-Rupee, operates using a combination of blockchain technology and a token-based system. Individuals and businesses can access the Digital Rupee through digital wallets provided by participating banks, which they can store on mobile or other devices. Digital Rupees don’t earn interest, and users can withdraw them from banks just like physical cash. You can convert your physical cash holdings into Digital Rupees using the Unified Payment Interface (UPI) payment gateway.

Advantages of Digital Rupee

The Digital Rupee comes with many advantages, such as:

1. Enhanced Efficiency and Round the Clock Availability

Digital Rupee transactions are expedited compared to other payment methods like cash handling, and cheque processing, which can sometimes take days for verification. Unlike money transfers that are constrained by bank working hours and weekends for final settlement, such as NEFT and RTGS in India, Digital Rupee transactions operate 24x7.

2. Cost savings on Global Transfers

Due to currency conversion fees, sending money overseas can be slow and costly. The introduction of the Digital Rupee is poised to revolutionise border money transfers streamlining bank cash management processes.

3. Foster Financial Inclusion

Unlike UPI payments like Paytm, the Digital Rupee provides opportunities for people to make transactions without a bank account. This increased access to digital payments empowers underserved communities leading to greater financial inclusion.

4. Increased Security

Digital Rupee transactions are secured using blockchain and advanced encryption technology. The use of advanced encryption techniques and digital signatures ensures secure transactions, reducing the risk of fraud.

5. Reduced Cost

As mentioned above, there is a substantial cost associated with printing, managing, and securing physical currency in India. Whereas digital currencies require no such expense. Additionally, the government will save on costs associated with any physical defects to which the digital currencies are immune.

6. Better Implementation of Government Schemes

The Digital Rupee significantly impacts the grassroots implementation of government schemes and policies. It allows the government to designate money in a manner that ensures it’s used correctly. With the Digital Rupee, the government can transfer funds directly to people’s digital wallets, ensuring timely and transparent delivery of benefits. For instance, authorised LPG agencies can pay grants digitally, eliminating misuse or tampering. Additionally, the Digital Rupee’s traceability features help monitor and evaluate these schemes, to improve their overall implementation.

The Digital Rupee represents a big step towards a more efficient and inclusive economy. Its introduction aids the RBI in addressing problems associated with existing physical currencies and cross-border transactions. By understanding what is Digital Rupee and adopting it, we can contribute to shaping a brighter financial future for India.

Frequently Asked Questions

1. How does the Digital Rupee differ from UPI and other modes of transfer?

The Digital Rupee is India’s digital currency, while UPI is a platform that helps transfer money between bank accounts. Notably, the Digital Rupee holds value by representing a claim on the Reserve Bank’s balance sheet.

2. Is the Digital Rupee the same as cryptocurrency?

Cryptocurrencies like Bitcoin, Ethereum, and others are decentralised digital currencies that are not backed by any government or bank. On the other hand, how E-Rupee works is that the RBI takes responsibility for ensuring the transactions are settled. Digital Rupee is reliable and secure since the central government backs them. Conversely, cryptocurrencies are more liable to security risks such as hacking. Lastly, E-Rupee will enjoy the same stability in value as the Rupee, while cryptocurrencies can be very volatile.

3. Is the Digital Rupee safe and secure?

The Digital Rupee uses strong encryption techniques and digital signatures to ensure the safety and security of transactions. As a result, it is the safest form of digital currency in India.

4. How much does a Digital Rupee cost?

1 Digital Rupee is equal to ₹1 in cash