Digital Rupee: Characteristics, Collaborating Banks & More Details

Earlier this week, the Reserve Bank of India (RBI) announced the commencement of the first trial for retail digital Rupee (e-rupee)l on December 1. To begin, the RBI has collaborated with four banks in Mumbai, New Delhi, Bengaluru, and Bhubaneswar:

• State Bank of India
• Yes Bank
• IDFC First Bank
• ICICI Bank

However, the Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank will join the trial later.

WHAT IS DIGITAL RUPEE, Or E-RUPEE?

According to the Reserve Bank of India, the e-Rupee is a digital token that serves as legal money. The digital Rupee, unlike cryptocurrencies, is issued in the same denominations as paper currency and coins.

HOW WILL THE DIGITAL RUPEE BE USED?

According to the RBI, digital rupees (e-Rupees) would be distributed to customers and merchants via intermediaries such as banks. Users can use e-Rupees to transact through a digital wallet offered by authorised banks and save on their mobile phones or devices.

The central bank also declared that digital rupee transactions between people (P2P) and businesses (P2M) would be possible (P2M). Like internet transactions, users can make e-Rupee payments by scanning QR codes displayed at merchant locations. "The e-Rupee would have physical cash characteristics such as trust, safety, and settlement finality." "As with cash, it will not earn interest and can be converted to other types of money, such as bank deposits," the official RBI release added.

The pilot would also evaluate the "robustness of the entire process of digital rupee generation, distribution, and retail usage in real-time," according to the RBI.

Later, the service would be expanded to include Ahmedabad, Hyderabad, Indore, Kochi, Gangtok, Guwahati, Lucknow, Patna, and Shimla, among other Indian towns.
The facility will be expanded to other sections of the country. The official launch date has yet to be announced. "As needed, the scope of the pilot may be gradually expanded to cover more institutions, users, and locations," the RBI added.

The RBI has been talking about deploying the digital Rupee for a long time, and certain customers will be able to make transactions using the e-Rupee beginning December 1. The central bank's ultimate goal with the digital Rupee is to introduce the CBDC (central bank digital currency) fully in the near future.

Digital Rupee

According to the proposed topic, the Central Bank Digital Currency (CBDC) is legal money issued by the Reserve Bank of India. According to the regulator, the RBI's CBDC, also called the Digital Rupee or e-Rupee, is the same as a sovereign currency and is exchangeable one-to-one at par with fiat currency.

Digital Rupee: Features

1) CBDC is a sovereign currency that central banks issue following their monetary policy.

2) It appears on the central bank's balance sheet as a liability.

3) All individuals, businesses, and government organisations must accept it as a medium of payment, legal tender, and a safe store of value.

4) CBDC can be freely converted into commercial bank money and cash.

5) CBDC is fungible legal money that does not require holders to have a bank account.

6) CBDC is projected to reduce the cost of money issuance and transactions.

CRYPTOCURRENCY VS DIGITAL RUPEE

The RBI has also expressed concern over the rapid rise in the popularity of bitcoin. "The growth of crypto assets may pose substantial dangers in money laundering and terrorism financing." Furthermore, unrestricted usage of crypto assets may pose a danger to monetary policy objectives since it may establish a parallel economy, undermining monetary policy transmission and domestic currency stability. It will also have a negative impact on the enforcement of foreign exchange regulations, particularly the circumvention of capital flow controls," it added.
"Furthermore, the development of CBDC might give the public a risk-free virtual currency that will provide them with legitimate benefits without the hazards associated with trading in private virtual currencies."

The Reserve Bank of India issues CBDC, or Central Bank Digital Currency, as legal money. A CBDC is a digital token or electronic record of a country's official currency that serves as a medium of exchange, unit of account, store of value, and standard of deferred payment. CBDC, according to the RBI website, is the same as central bank cash but takes a different shape than paper currency (or polymer). It is a sovereign currency in electronic form and will appear on a central bank's balance sheet as a liability (currency in circulation). CBDCs should be exchangeable for cash.