Digital Rupee Launched

Guest post by Pallavi Mohan

Recently, the Reserve Bank of India (RBI)–India’s central bank–launched a pilot programme for India’s first central bank digital currency (CBDC) called the ‘Digital Rupee – Retail Segment’ (e₹-R). Let’s find out more about this latest currency.

What is the ‘Digital Rupee – Retail Segment’ (e₹-R)?

The e₹-R is a digital token which can be used as legal tender for payment, receipt and settlement of money. RBI will issue the digital rupee in the same denominations as the paper currency and coins it currently issues. You can pay and receive the digital rupee through digital wallets offered by participating banks. You will be able to make both Person to Person (P2P) and Person to Merchant (P2M) transactions. You can convert the digital rupee into other forms of currency such as deposits in banks, but the digital rupee will not earn any interest. 

As with physical currency, RBI will issue and redeem the digital rupee while the banks will manage the distribution and payment services. RBI intends to work towards the interoperability of the digital rupee with other payment systems.

What are the details of the pilot project launched by RBI?

The RBI has launched the pilot project to cover select locations in a closed user group (CUG) comprising participating customers and merchants. It has launched the project in phases. It has identified four banks in Mumbai, Delhi, Bengaluru and Bhubhaneshwar to be a part of the first phase. In the next phase, it will add more banks and cities to the project. 

Is the Digital Rupee the same as cryptocurrencies?

Cryptocurrencies are digital or virtual currencies secured by cryptography that can be mined or purchased from cryptocurrency exchanges. Many cryptocurrencies use blockchain technology (a digital database or ledger that is distributed among the nodes of a peer-to-peer network). In a blockchain, every new block (containing transactions) must be verified by each node of the network before being confirmed. This protects cryptocurrency transactions from forgery and fraud.

Cryptocurrencies are not issued by any central authority, which makes them immune to any kind of governmental interference. Some examples of cryptocurrencies are Bitcoin, Ethereum, XRP, Cardano, Solana, etc. 

The digital rupee launched by the Reserve Bank of India is a digital currency, but not a cryptocurrency. There are two major differences between cryptocurrencies and the digital rupee:

• cryptocurrencies are decentralised and have no issuing authority, whereas the digital rupee will be issued, managed and controlled by the RBI. 
• cryptocurrencies operate on blockchain technology in which each node/person of the network verifies every transaction before it is confirmed. With the digital rupee, the holding of the digital token will suggest ownership, and the person owning the token will verify that their ownership is genuine. This is like the case of physical currency.