RBI’s e-rupee

The Reserve Bank of India (RBI) launched the Central Bank Digital Currency (CBDC) — digital rupee or e-rupee (eRS) for public use starting from 1 December 2022.

Details of the launch:

• The pilot launched is going to initially cover four cities — Mumbai, New Delhi, Bengaluru, and Bhubaneswar — and will be later extended to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.
• This will work in a closed user group (CUG) comprising participating customers and merchants.
• Selected customers from the selected cities will get CBDC wallets with notes printed digitally with the RBI Governor’s signature.
• Eight banks will participate in the pilot project— the State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank in the first phase in the first four cities, and subsequently, Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank.
• The scope of the pilot may be expanded gradually to cover more banks, users, and locations.

What is CBDC or the digital rupee?

• CBDC is a legal tender issued by the RBI in digital form.
• It is the same as the fiat currency and is exchangeable one-to-one with the fiat currency.
• It is a fungible legal tender, for which holders need not have a bank account.

• CBDC will appear as a ‘liability’ (currency in circulation) on the RBI’s balance sheet.
• The e-rupee will be in the form of a digital token representing a claim on the central bank, and will effectively function as the digital equivalent of a banknote that can be transferred electronically from one holder to another.
• A token CBDC is a ‘bearer-instrument’ like a banknote, meaning whoever ‘holds’ the tokens at a given point in time will be presumed to own them.

Need for a digital currency:

• The development of CBDC could provide the public with a risk-free virtual currency that will give them legitimate benefits without the risks of dealing in private virtual currencies.
• The approach to the issuance of CBDC will be governed by two basic considerations:
• To create a digital rupee that is as close as possible to a paper currency.
• To manage the process of introducing the digital rupee in a seamless manner.

How will they work?

• Process of Issuance: E-rupees will be issued in the same denominations as paper currency and coins, and will be distributed through the intermediary, i.e. Banks.
• Process of using it:
• Transactions will be through a digital wallet offered by the participating banks, and stored on mobile phones and devices.
• Transactions can be both person-to-person (P2P) and person to the merchant (P2M). For P2M transactions (such as shopping), there will be QR codes at the merchant location.
• A user will be able to withdraw digital tokens from banks in the same way he/she can currently withdraw physical cash.
• The user will be able to keep his/her digital tokens in the wallet, and spend them online or in person, or transfer them via an app.

How is this different from other wallets?

• However, UPI-based apps like Google Pay and Paytm have a daily and per-transaction spending limit.
• The RBI has not fixed any limit on holding digital rupees in wallets.
• Digital rupee transactions above Rs.2 lakh are likely to be reported for tax matters.