Context India launched its e-Rupee on December 1 2022. The Reserve Bank of India’s Central Bank Digital Currency (CBDC) is an electronic version of cash, and will be primarily meant for retail transactions. The pilot will initially cover the four cities of Mumbai, New Delhi, Bengaluru, and Bhubaneswar.

Four banks will be involved in the controlled launch of the digital currency in these four cities: State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank

What is e-Rupee?

It is form of official Cryptocurrency.  It is same as fiat currency and is exchangeable one to one with fiat currency. Only its form is different. Users can transact with e-Rupee using a digital wallet on mobile phones. It is a fungible legal tender for which holders do not need bank account.

How will e-Rupee be used?

  • E-Rupee will be issued in the same denominations as paper currency and coins.
  • Transactions can be both Person to Person (P2P) and Person to Merchant (P2M) Ex- Shopping etc. based.
  • A user will be able to withdraw digital tokens from banks in the same way she can withdraw physical cash.
  • Digital tokens stored in phone wallet can be spent online or in person.
  • No maximum limit on holding digital rupees in wallet right now.

(Credits- The Hindu business Line)

How is CBDC different from other Cryptocurrencies?

  • Private cryptocurrencies have no intrinsic value of their own while CBDC is a fiat currency i.e. made legal tender by a government decree.
  • Cryptos like Bitcoin etc. do not represent any person’s debt or liabilities while CBDC will appear as liability on RBI’s balance sheet.
  • Cryptos like Bitcoin etc. are designed to bypass the established and regulated intermediation while CBDC are issued by country’s central bank RBI.

What are the potential benefits of e-Rupee?

  • Reduced dependency on cash
  • Higher seigniorage due to lower transaction costs
  • Since payments are final (i.e. no need for interbank settlement) it reduces settlement risk in the financial system.
  • Spurs Settlement efficiency and innovation in cross border payments.
  • To quell concerns like money laundering, terror financing etc. with other private cryptocurrencies.

Will CBDC work in offline mode?

No indication yet from the RBI that the e-Rupee will function in offline mode. There is a risk of “double spending” in offline mode because it will be technically possible to use a CBDC unit more than once without updating the common ledger of CBDC. However it can be mitigated with technical solutions.

Way Forward-

e-Rupee is landmark innovation in country’s payment ecosystem. However, concerns like digital divide, financial illiteracy, cyber attack risks etc. need to be addressed

Source- Indian Express

NEWS- How the e-rupee will work?

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