e-Rupee

Why in news?

• The Reserve Bank of India (RBI) on December 1, 2022, began the trial run of India’s first retail central bank digital currency (CBDC) or ‘e-rupee' in four cities—Mumbai, Delhi, Bengaluru, and Bhubaneswar—through eight participating banks

About e-Rupee or Central Bank Digital Currency (CBDC):

• e-Rupee is a form of digital token that represents legal tender.
• The e-Rupee can be transacted using wallets backed by blockchain.
• Though the concept of CBDCs was directly inspired by Bitcoin, it is different from decentralised virtual currencies and crypto assets, which are not issued by the state and lack the ‘legal tender’ status.
• Unlike cryptocurrencies, the digital Rupee is issued in the same denominations as paper currency and coins.

How it works?

• The digital Rupee or e-Rupee will be distributed through intermediaries like banks to customers and merchants.
• Users will be able to transact with e-Rupee through a digital wallet offered by the eligible banks and stored on mobile phones or devices.
• The transaction in digital Rupee can happen between Person to Person (P2P) and Person to Merchant (P2M).
• Users will be able to make payments through e-Rupee using QR codes displayed at merchant locations, just like online transactions are done.
• As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks.

Advantages of CBDC:

• The key motivations for exploring the issuance of the digital rupee in India include reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency and innovation to the payments system.
• It will also add efficiency to the settlement system and boost innovation in the cross-border payments space and provide the public with uses that any private virtual currencies can provide, without the associated risks.

Digital currencies of other countries:

• Bahamas has been the first economy to launch its nationwide CBDC — Sand Dollar.
• Nigeria rolled out eNaira in 2020.
• China became the world's first major economy to pilot a digital currency e-CNY in April 2020.

Add ons:

• CBDC is not expected to replace India’s premier instant payment solution, Unified Payment Interface (UPI), instead, it is touted to replace physical cash.

PRACTICE QUESTION:

With reference to ‘e-Rupee’, recently launched by the Government, consider the following statements:

1.  It is issued in the same denominations as paper currency and coins.

2. It will be distributed through intermediaries like banks to customers and merchants

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

                         C

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