What Is E-Rupee And How Does It Work?

On December 1, the Reserve Bank of India (RBI) launched its pilot project for central bank digital money, or e-Rupi. While the trial project will be carried out in four cities: Mumbai, New Delhi, Bengaluru, and Bhubaneswar, it is expected that it would soon be available to inhabitants throughout India. It is going to be an upgraded version of the Indian Rupee which works only digitally. eRupee has been created keeping in view the huge demand for digital money in various sectors like Banking, Retail, eCommerce, and so on.

What is eRupee or digital rupee?

Firstly, the introduction of the eRupee will not replace the paper currency that we have traditionally transacted with. Digital currency would simply be a new form of physical currency.

It will have a par value, that is, it will be exchangeable at par with paper money. It will be accepted as “a means of payment, legal tender and a secure store of value. CBDCs will appear as a liability on the balance sheet of a central bank,” the RBI note said.

The eRupee will most likely use an indirect approach to currency issue and management, with intermediaries (such as banks and other service providers) handling customer claims and the central bank handling bulk payments exclusively to intermediaries. It will be made in line with the current physical cash management system, covering all accounting standards and checks and balances principles.

According to the RBI, CBDC might be used as a “token-based” or “account-based” currency. In the token system, whomever holds the token is believed to be the owner of the CBDC, but in the account-based system, an intermediary must keep track of all CBDC holders’ balances and transactions. A token-based system, which is closer to the cash-based system we are accustomed with, may be used for retail transactions, whereas an account-based system could be used for wholesale purchases (for which there will be a separate currency called CBDC-W and CBDC-R for retails transactions).

Differences between Digital Rupee and Cryptocurrency

A CBDC is a legal tender issued by a central bank in digital form,” according to the RBI. It is the same as fiat money and may be exchanged for it one for one. Only the shape differs.

But a CBDC cannot be compared to a cryptocurrency at all.

A CBDC, unlike cryptocurrencies, is not a commodity or claim on a commodity or digital asset. Cryptocurrencies do not have an issuer. They are not money (definitely not currency) as the term has come to be known historically,” according to the RBI release.

The CBDC is a digital representation of paper money issued by central banks such as the RBI, and it should be exchangeable like cash. The well-recognized digital rupee is a currency issued by the RBI, and the digital rupee will serve the same purpose, but it will not be a decentralized asset like cryptocurrencies. The digital rupee will be a currency issued by central banks which would be in charge of administering and maintaining the asset.

The digital rupee will be a legal currency, which means you may use it to buy everything you need. Digital rupees include services like as digital wallets, NEFT, and IMPS. As a result, when the RBI begins to circulate the digital rupee, all Indian people will be able to utilize it.

How it will work?

The eRupee will be available in two versions: wholesale for interbank payments and retail for widespread circulation. Even though the RBI issues digital money, commercial banks can distribute it.

E-rupees will be supplied to the general public through a token-based method. The individual transmitting the virtual money must be aware of the recipient’s public key. To complete the transmission, both the recipient’s private key (a specific password) and the public key are used.

Transactions are likely to be somewhat anonymous; those involving greater quantities may be compelled to be reported, whilst those involving smaller sums, like cash transactions, may be fully anonymous. The RBI notice further states that it must be kept in an e-wallet provided by a bank or other authorised service provider.

Purpose of Digital Rupee

The fundamental argument for the establishment of the digital rupee is the RBI’s desire to progress India in the competition for virtual currencies. In the course, cryptocurrencies are becoming increasingly important.

  • Blockchain technology will make the digital rupee more efficient and transparent.
  • The payment method will be available to both wholesale and retail clients at all times.
  • Indian customers can pay directly.
  • Furthermore, blockchain will enable record upkeep and real-time tracking.
  • It is low cost per transaction.
  • Real-time account settlements.
  • You do not need to create a bank account to utilize a digital rupee.
  • International transactions are completed quickly.
  • There is little chance of instability since the RBI will back it up.
  • The digital rupee, unlike traditional money, will always be portable.

Classifying the digital rupee

The RBI has divided the digital rupee into two categories: general purpose (CBDC-R) and wholesale (CBDC-W) (CBDC-W). The digital rupee is classified according on how it is utilised, the activities it accomplishes, and the various degrees of accessibility.

CBDC wholesale is only offered to a small number of financial institutions. It has the potential to reduce operating costs, increase collateral utilisation, and improve liquidity management in order to settle financial transactions carried out by banks in the government securities (G-Sec) segment, the interbank market, thereby improving capital market security and effectiveness.

Retail CBDC can be used by anybody, including the private sector, non-financial clients, and companies. Because retail CBDC is a central bank duty, it can give consumers with access to safe money for payments and settlement.

The pilot test was carried out to evaluate the overall resilience of the process of manufacturing digital rupees, distributing them, and using them in real-time. The RBI stated in a statement that other features and uses of digital money would be examined in future pilots based on the lessons acquired from this pilot.

This sort of digital money will initially be used to make retail purchases. The e-rupee will be able to give access to safe money for payments and settlement since it will be directly answerable to the central bank.

Is the digital rupee safe?

Users should not be concerned about the credibility of the digital rupee or compare it to other digital currencies such as cryptocurrencies. Because it will be issued by the central bank, it will have the same degree of confidence as genuine currency.

Yes, there may be some early problems while utilising digital cash. However, the central bank has emphasised that the pilot would be used to learn and that, based on what it learns, it will give clients with a range of services and applications in the future.


E-Rupee is a step forward for India, and it shows that the country is looking to innovate using new technology to keep up with the times. The country needs to be able to manage its finances in an increasingly digital world if it wants to stay competitive on the global stage

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