The Reserve Bank of India will issue the Digital Rupee, also known as the Electronic Indian Rupee or

E-Rupee, as the CBDC calls the central bank digital currency. It is a blockchain-based digital version of
the Indian Rupee. The Reserve Bank of India (RBI) will launch the Digital Rupee digital currency in the
upcoming fiscal year. A central bank digital currency (CBDC) uses an electronic document to
represent the digital copy of a given country's (or region's) fiat currency. The Reserve Bank of India
will be accountable for the digital rupee, enabling users to transfer spending power from bank
accounts into smartphone wallets in virtual tokens. Without ATMs, a digital rupee will resemble
banknotes.

For the global issuing and administration of CBDCs, there are two models. The framework of legal
actions and the records maintained by the reserve bank are the main differences.

A) The single-tier approach is called the "Direct CBDC Model." In a direct CBDC system, the central
bank oversees all operations, including transaction verification, account maintenance, and issuance.
Since the central bank controls the retail ledger in this approach, all payments are processed
through the central bank server. In this paradigm, the central bank, which keeps track of all balances
and updates them after each transaction, is directly sued by the CBDC. As the central bank has
complete knowledge of retail account balances, it offers the benefit of a very resilient system. It
makes it simple to honour claims because all the information required for verification is readily
available. This model's main drawback is that it discourages payment system innovation and
marginalizes private sector involvement. This concept is intended for disintermediation scenarios in
which central banks deal directly with end users. The central banks will have to manage customer
onboarding, KYC, and AML checks, which might be challenging and expensive for the central bank.
This approach has the potential to destabilize the current financial system.

(B) A two-tiered model (Intermediate model) Due to the single-tier model's inefficiencies, CBDCs
must be created as a part of a two-tier system in which the central bank and other service providers
each fulfill a specific function. The indirect model and hybrid model are the two models included in
the intermediate architecture. Consumers would keep their CBDC in an account or wallet with a
bank or service provider under the "indirect CBDC" approach. The intermediary, not the central
bank, would be obligated to supply CBDC upon request. The central bank would monitor only the
intermediaries' wholesale CBDC balances. The central bank must ensure that all of the retail
balances available to retail clients equal the wholesale CBDC balances.

Advantages

• Decrease in reliance on money

• Lower cost of currency handling
• Lower risk of settlement innovation in international payments
• Lower expenses for transactions
• Use of blockchain technology in financial services
• Improvement of interbank market efficiency
CHALLENGES & RISKS

Monetary and fiscal policy, financial market structure, and threats to financial stability. The
deregulation of the banking industry and cost & credit availability risks.

CBDCs don't always address the centralization issue. The responsibility and power to carry out
transactions continues to rest with a central authority (the central bank). It still has power over
data and the levers that govern interactions between customers and banks. Since the
administrator is in charge of gathering and disseminating digital identifications, users would have
to give up some level of privacy. Every transaction would be disclosed to the provider. This could
result in privacy problems, much like the ones that trouble tech giants and Internet service
providers (ISPs). For instance, thieves could hijack computers and use the data for their own
purposes, or governments could forbid citizen-to-citizen transactions. Concerning CBDCs, the legal
and regulatory difficulties constitute a dark hole. What will these currencies be used for, and who
will control them? Should they be regulated across borders given their advantages in cross-border
transfers? The results of ongoing CBDC experiments may have a long-term impact. Due to the
mobility of these systems, a powerful CBDC created by a foreign nation may end up replacing the
currency of a less powerful nation. A digital US dollar might replace a smaller nation's or a failed
state's native money.