The RBI set up a working group in 2020 to study the possibility of a CBDC or Central Bank Digital Currency in India. Explaining all about the digital rupee and what it means to you, RBI released a concept note on 7th October 2022. In fact, in the 2022 Union Budget, the Government of India announced the launch of a Central Bank Digital Currency.
Soon, RBI would commence the pilot launch of the digital rupee for use in specific cases. The digital note is in its planning stage and thus the final result can change, based on the outcome of the pilot trials of RBI. The concept note explains the choices, objectives, risks, and benefits of issuing a CBDC in India.
All About the Digital Rupee and What it Means to You
Here we will discuss our understanding of the digital note as outlined in the concept note:
What is the digital rupee or e-rupee?
It is simply the digital version of INR being explored by the RBI. Two versions of e-rupee would be issued as proposed by the RBI- one would be retail for the general public and the other would be wholesale for interbank settlement. The indirect model as proposed by the RBI would let people hold the e-rupee in a wallet with a service provider or bank.
Is e-rupee a cryptocurrency?
The RBI did not decide yet but the underlying technology of cryptocurrency can underpin certain parts of the e-rupee system. However, unlike cryptocurrencies such as Ethereum or Bitcoin, which are private in nature, RBI will issue and control the digital rupee.
Can you mine it?
No, you cannot mine it like Bitcoin. RBI will issue the same as already stated. Thus, the concerns associated with environmental and energy use with bitcoin would not afflict the e-rupee probably.
How will the digital rupee be distributed?
RBI has a model in place where it proposed to issue the digital rupee and thereafter it would be distributed by the commercial banks.
How to transfer e-rupee?
The retail version is token-based, which means you need to know the public key of the recipient and transfer the e-rupee to them by using your private key.
Will the e-rupee earn interest?
Unfortunately, not according to the concept note by RBI. They are not favoring an e-rupee with interest. This is simply because people could then withdraw their money from banks and convert it to e-rupee, triggering the banks to fail.
Will the transfer be anonymous?
When a bank transfer is done it goes from an identified individual to another. However, a cash transfer is anonymous since you would not know who help it before you. RBI concept note has proposed partial anonymity for e-rupee where a small amount can be anonymous but not bigger amounts.
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Why should anyone hold it?
Well, convenience for one thing. E-rupee transactions can remove the inconvenience of moving around with physical coins and notes. Moreover, RBI has outlined certain benefits for the nation as a whole like innovation, financial inclusion, and lowering the costs involving cash transactions.
Can e-rupee be programmed?
There is a possibility for it to be programmed to achieve a certain purpose. For instance, it can be spent on a specific sector like agriculture. Alternately, it could be given life for a limited period like a voucher thereby allowing RBI to stimulate demand as needed and withdraw when not required. Since these features come with trade-offs, RBI did not finalize anything yet.
What if the internet is down?
RBI has thought about this issue as well that might occur. Hence, RBI proposed offline functionality for the e-rupee. This means people can transact without an active internet connection. However, this could create the issue of duplication where the same e-rupee is transferred to various people. RBI is going to look for tech solutions for lowering such synchronization issues like putting a cap on the amount or number of offline transactions.
Let us know in the comments section below how excited are you after learning all about the digital rupee and what it means to you. Share the article with others if you found the information useful.