E-Rupee Project


    In News

    The RBI launched a limited test of the retail digital rupee for specific use cases on November 1, 2022.

    Key Points

    • The pilot Project covers select locations in a closed user group (CUG) comprising about 15,000 customers and merchants across the country. 

    Image Courtesy: IE 

    • The pilot will later be extended to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. 
    • Four more Banks will be included soon:
      • Bank of Baroda, 
      • Union Bank of India, 
      • HDFC Bank and 
      • Kotak Mahindra Bank


    Central Bank Digital Currency (CBDC)

    • It is the legal tender issued by a central bank in a digital form. 
    • It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.
    • It will be an electronic version of cash.
    • It will be primarily meant for retail transactions. 
    • It will be potentially available for use by all which includes the private sector, non-financial consumers and businesses.
    • It will be able to provide access to safe money for payment and settlement.
    • It will be the direct liability of the central bank.



    How will the retail digital rupee work?

    • It will be issued in the same denominations as paper currency and coins and will be distributed through banks.
    • Users will be able to transact through a digital wallet which would be stored on mobile phones and devices.
    • Transactions can be both:
      • Person to person (P2P)
      • Person to merchant (P2M).
    • Payments to merchants can be made using QR codes displayed at merchant locations.
    • It will not earn any interest and can be converted to other forms of money like deposits with banks. 
    • RBI has demarcated the digital rupee into two broad categories:
      • General purpose (retail)
      • Wholesale
        • The RBI has already launched the digital rupee for the wholesale segment to settle secondary market transactions in government securities.
        • Wholesale CBDC is designed for restricted access to select financial institutions. 
        • It has the potential to transform the settlement systems for financial transactions undertaken by banks in the government securities (G-Sec) segment, inter-bank market and capital market more efficiently and securely in terms of operational costs, use of collateral and liquidity management.



    • It aims at reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency and innovation in the payments system.
    • It will add efficiency to the settlement system and boost innovation in cross-border payments space.
    • It will provide the public with the uses that any private virtual currencies can provide without any associated risks.
    • It will curb issues such as money laundering, terror financing, tax evasion, etc.  
    • E-rupee transactions can be both person to person (P2P) and person to merchant (P2M). 
      • For P2M transactions, such as shopping, there will be QR codes at the location. 
      • Users will be able to withdraw digital tokens from banks in the same way they currently withdraw physical cash. 
      • Users will be able to keep the digital tokens in the digital wallet, and spend them online or in person, or transfer them via an app.


    • Lack of Consumer Protection: No Dispute Settlement Mechanisms and control of Securities and Exchange Board of India (SEBI). 
    • Digital Illiteracy: The population of India is currently not equipped to deal with cryptos.
    • Security Risks: Cyberattacks on wallets, exchange mechanism (Crypto jacking). 
    • Shield to Crime:  If not regulated and monitored properly, it can be used for illicit trading, criminal activities, & organised crimes. 
    • Popularity of Cryptocurrencies: RBI has repeatedly flagged concerns over money laundering, terror financing, tax evasion, etc with private cryptocurrencies like Bitcoin, Ether, etc.
    • Low volume: The volume of transactions seems to be low in the test phase, vendors now have another option to accept payment from customers, apart from cash and the unified payment interface (UPI). 
    • Preferences of Consumers: If there is a delay in a transaction or if it fails, customers prefer paying using other digital payment modes, which are currently faster.

    Way Ahead

    • E-rupee should be issued in the same denominations as paper currency and coins.
    • Different features and applications of the e-rupee token and architecture should be created to enable and ease its usage and transition to e-Rupee.

    Source: IE