The Reserve Bank of India has launched its pilot program on the Central Bank Digital Currency (CBDC), which the government will recognize as a legal tender. The digital rupee is going to be accepted for payments in addition to the existing currencies within the market. 

The digital rupee, also known as e₹, aspires to create an additional option to create transactions taking a similar approach to the circulated banknotes. The only difference is that digital rupees will have a digital transaction, facilitating ease of use. So, let’s have a better understanding of how the digital rupees are going to add stability to the country’s financial system. 

What is Digital Rupee? 

Just as the name suggests, Digital Rupee is the tokenized version of the Indian currency. According to the RBI, “the Digital Rupee is considered legal tender.” Not to mention, digital rupees are also being issued in the same denominations as that paper currencies. 

RBI has clearly mentioned that the Digital Rupee is going to be circulated to the customers and merchants using banks as intermediaries. Users will be able to make transactions via digital wallets provided by the banks on their mobile phones. 

How Digital Rupee is Different from UPI? 

Digital Rupee is a recognized sovereign currency, while UPI programs including PhonePe, Google Pay, Paytm, and NEFT are used in the form of payment mediums. Predominantly, UPI transactions are backed by actual currency, while the digital rupee is the legal tender without any physical money backing it up.  

Furthermore, with UPI transactions, there is the involvement of banks as intermediaries. While sending money to the recipient, the amount is debited from the sender’s bank and transferred to the recipient’s bank. With Digital Rupee, you can simply send and receive money from your wallet. 

How Digital Rupee is Different from Other Cryptocurrencies?

A Cryptocurrency works as a decentralized digital asset, which can be used as a medium of exchange. Cryptocurrency is based on the blockchain technology. Being a decentralized ledger, there is no involvement of governing bodies including central authorities or banks. 

In that aspect, the digital rupee is different from cryptocurrencies such as Bitcoin or Ethereum, since it is backed by the Reserve Bank of India. Not to mention, the digital rupee is going to hold its intrinsic value, equivalent to a physical rupee. 

How Does Digital Rupee Work?

Using the digital rupee is similar to that of cash, with the only exception of the e₹ being an electronic token stored in the digital wallet. Here’s how the digital rupee works: 

Step 1: Issuing the Digital Rupee 

The RBI is responsible for issuing the digital rupee in the form of a digital token. The digital rupee is going to have the same denominations as its physical counterparts. The total number of tokens will be distributed by the RBI to intermediaries known as Token Service Providers (TSPs)

Step 2: Acquiring the Digital Rupee 

All the partnered banks will make the CBDC tokens available for their customers via digital wallets. Users can withdraw their digital rupee from the banks, similar to withdrawing cash. The amount will be then converted into a digital token using UPI or bank transfer. 

List of Banks Issuing Digital Rupee

In order to facilitate digital rupee transactions, the National Payment Corporation of India (NPCI) has teamed with 11 banks nationwide. You can find the list of all the banks below: 

  • Axis Bank
  • Canara Bank
  • Punjab National Bank
  • Bank of Baroda
  • HDFC Bank
  • Indian Bank
  • ICICI Bank
  • Kotak Mahindra Bank
  • Union Bank of India
  • IndusInd Bank
  • State Bank of India

Use Cases for Digital Rupee

Now that you know how the digital rupee operates, here’s how you can make transactions for the same: 

1. Person to Person (P2P): You transfer the digital rupee to another person directly from your digital wallet, using their mobile number or QR code. Simply select the available denominations from your wallet and send. The fund will be transferred in real-time, similar to making a UPI payment. 

2. Person to Merchant (P2M): You can also send money to any merchant by simply scanning the QR code for their business. Enter the amount, approve your payment and you can share the transaction ID with the merchant. 

3. Unloading from Digital Wallet: You can also redeem your digital wallet, and send money to the linked bank account. Simply select your bank account followed by the amount you want to send. 

Digital Rupee is the Next Big Thing in Indian Finance

This goes without saying that the introduction of digital rupees in the Indian market is going to create a whole new world of possibilities. Not to mention, there is a large population in the country that doesn’t have access to banking services. The introduction of digital rupees can provide them financial liberty while offering additional benefits in the field of healthcare, medications, subsidiaries, and more. 

Tathagata is a avid lover of sci-fi films and technology. An aspiring electrical engineer and a passionate technical writer. He is very friendly, realist and always on the hunt for latest technological advancements.


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