Banking and Financial Services Institution

Name : Ronika Dave

Roll No. : 2021039
Div. : Finance – A

Digital Rupee

Digital rupee, also known as Central Bank Digital Currency (CBDC), is a digital form of currency
notes issued by a central bank. It is substantially not different from banknotes, but being digital it is
likely to be easier, faster and cheaper. It also has all the transactional benefits of other forms of digital
money.

The Digital Rupee (e₹)] or E-Rupee is a planned digital version of the Indian Rupee, to be issued by

the Reserve Bank of India (RBI) as a central bank digital currency (CBDC). The Digital Rupee was
proposed in January 2017 and will be launched in the 2022-23 financial year. The plan is to
incorporate distributed ledger into Digital Rupee.
Like banknotes it will be uniquely identifiable and regulated by Central Bank. Liability lies with RBI.
Plans include online and offline accessibility.RBI will launch Digital Rupee for Wholesale (e₹-
W) catering to financial institutions for interbank settlements and Digital Rupee for Retail (e₹-R) for
consumer and business transactions. CBDC will remove ₹4,984.80 crore security printing cost borne
by the general public, businesses, banks, and RBI on physical currency.

Definition
The Central Bank Digital Currency (CBDC) can be defined as the legal tender issued by the Reserve
Bank of India, according to the concept note. Touted as Digital Rupee or e-Rupee, RBI's CBDC is the
same as a sovereign currency and is exchangeable one-to-one at par with the fiat currency, the
regulator mentioned.

Features of Digital Rupee

1) CBDC is a sovereign currency issued by central banks in alignment with their monetary policy.

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

3) It must be accepted as a medium of payment, legal tender, and a safe store of value by all citizens,
enterprises, and government agencies.
4) CBDC is freely convertible against commercial bank money and cash.

5) CBDC is a fungible legal tender for which holders need not have a bank account.

6) CBDC is expected to lower the cost of issuance of money and transactions.

Where will it be applicable?

Digital Rupee will be used for large payments and settlements. According to the RBI, it will be used as
the settlement amount on the purchase and sale of government securities i.e. government bonds. The
Reserve Bank has also said that it will also be used for retail transactions soon.

How does it work?

Similar to checking the bank balance, one can check the balance in the wallet. CBDC will be based on
blockchain technology. Individuals will be able to pay it to whomever they want to pay and it will
reach their account.
CBDCs are of two types– Central Bank Digital Currency Wholesale, which is used for large amounts
of transactions and  in the second phase, Central Bank Digital Currency Retail will be used for retail.

Central Bank Digital Currency Wholesale will be used by large financial institutions, including banks,
large non-banking finance companies and other big transaction institutions.

Central Bank Digital Currency Retail can be used by people for everyday transactions. This will start
at select locations and banks first. People of all age groups will be included in the retail project. Then
based on their experiences, the features will be changed if needed.

Benefits of Digital Rupee

Apart from reducing the transaction cost, having a digitised currency will make it easier for
governments to access all transactions happening within the authorized networks. It will become
impossible to avoid the gaze of the government, thus subjecting every transaction to relevant laws
within the country. Hence, the government will have better control over how money leaves and enters
the country, which would allow them to create a space for better budgeting and economic plans for the
future, and overall a much safer environment.