E Rupee

The Reserve Bank of India (RBI) announced plans to introduce the e-rupee, a Central Bank
Digital Currency, in limited pilot launches with the intent of implementing it as an additional form
of currency issued alongside paper money.

What is e-Rupee?

The CBDC will operate on a "token-based" currency, according to which whoever is in

possession of the token is assumed to be the owner of the CBDC. The introduction of the
e-Rupee won't eliminate the paper money that we already use for transactions; it will hold the
same value and be interchangeable with paper money. It is recognised as a valid form of
payment, legal tender, and a secure place to store money. Due to the fact that it will be based
on the current physical cash management system, which incorporates all accounting regulations
and checks and balances principles.

What are the forms of CBDC?

The central bank is proposing the introduction of two CBDCs: a general-purpose or retail
version (named CBDC-R) and a wholesale version (designated CDBC-W). Each has its merits
and demerits. Retail CBDC is primarily meant for retail transactions. It will be potentially
available for use by all—private sector, non-financial consumers and businesses—and can
provide access to safe money for payment and settlement as it is a direct liability of the central
bank. Wholesale CBDC is designed to only be accessed by a small number of financial
institutions. In terms of operational expenses, the use of collateral, and liquidity management, it
has the potential to revolutionize the settlement systems for financial transactions carried out by
banks in the government securities (G-Sec) segment, the interbank market, and the capital
market.

What is the difference between e-Rupee and crypto currency?

The main distinction between the two is that CBDC is supported by the RBI and is recognised
as legal cash. Since it is a fiat currency, one e-Rupee can be converted into one actual rupee. It
won't experience volatility the way cryptocurrencies do.

Bitcoins don't have any intrinsic worth (like traditional currency or CBDC). They are vulnerable
to extreme fluctuations because their value is primarily derived from finite supply and rising
demand. Money is deemed useful when it can hold its value over an extended period of time,
yet cryptocurrency's value can swing drastically because of its artificial scarcity. Therefore, even
though cryptocurrencies have some characteristics in common with traditional money, the
aforementioned characteristics distinguish them and reduce their appeal.

A larger spread of cryptocurrencies also has the potential to limit the ability of the country's
monetary authorities to control its monetary system and set its monetary policy, which might
seriously jeopardize its financial system's stability.

Why is it being introduced?

The approach to issuing CBDC will be guided by two fundamental considerations: creating a
digital rupee that is as close to a paper currency as possible and providing the public with a
risk-free virtual currency that will provide them with legitimate benefits without the risks
associated with dealing in private virtual currencies, as unrestricted use of cryptocurrencies
poses a risk to India's financial and macroeconomic stability.

Aside from that, the central bank believes that CBDCs should have offline capabilities in order
to be a more appealing and accessible medium of payment for a broad range of customers. It is
a step toward strengthening India's stance on digitalization and making the country less reliant
on cash.

What are the advantages of e-rupee?

The RBI stated that the major motives for the issuing of CBDC in India include lowering
operating expenses associated with physical cash handling, increasing financial inclusion, and
bringing resilience, efficiency, and innovation to the payments system. Furthermore, it will
improve settlement system efficiency, stimulate cross-border payments innovation, and provide
the public with applications that any private virtual currency may provide, without the
accompanying hazards.

All digital rupee or e-rupee transactions, like conventional notes, would be subject to the rules
of the RBI. Aside from that, the digital rupee may be used as legal money for payment purposes
by companies, government organizations, and individuals, who can use it in the same manner
that they use physical bank notes.

In addition, the RBI has suggested using the e-Rupee without a bank account, allowing people
to just handle the fungible digital money as they would a real note. The e-Rupee will also make
carrying actual notes unnecessary while lowering the cost of issue. It's because bank-issued
real-world currency and the e-Rupee are fully convertible.
 The RBI has emphasized the importance of energy efficiency and environmental friendliness. In
this regard, e-rupee issuance and administration should consume far less energy than the more
energy-intensive procedures often connected with the mining and distribution of private
cryptocurrencies.

The central bank anticipates that with such a technology, the CBDC platform would create
massive amounts of data in real time. The concept note emphasizes that this data may be used
effectively while keeping privacy considerations in mind. It goes on to say that the data may aid
in evidence-based policymaking, that it can become a rich data source for service providers
seeking financial product insights, and that it can help reduce noncompliance with existing
norms and regulations.