-By Pratyay Bharadwaj &
Mayank Singh
Introduction
The eRupee or the Digital Rupee refers to the currency of India in the digital form. It is a form of virtual money serving the same purpose as physical money. The eRupee is Central Bank Digital Currency (CBDC) issued by the Reserve Bank of India. CBDC is defined as a legal tender issued by the central bank in a digital form. The eRupee maintains the trust and stability associated with the traditional form of currency since it is centralised and directly regulated by the RBI.
Why bother about e-rupee ?
The main reason for the introduction of eRupee was to enhance financial inclusion and provide greater access to formal financial services. This also aligns with the country’s aim of reducing dependency on physical currency which will help the government to have better control over the monetary transactions, keeping a check over illicit activities. The eRupee is issued and controlled using blockchain and distributed ledger technology for more secure and transparent transactions.
The eRupee is issued in the same denominations as the physically available banknotes and coins. Its transactions can be used via digital wallet or UPI. Companies including Google, PhonePe, Amazon Pay, Cred, and Mobikwik are looking to join the Indian central bank’s digital currency project by allowing their users to transact in e-rupee via UPI. Through this move, these payment platforms seek to widen their use case beyond enabling payment transactions between users linked to their registered banks in the country.
RBI selected 8 banks to take part in the eRupee program in two different pilot programmes. State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank comprise the first phase in four Indian cities including Mumbai, Bengaluru, New Delhi, and Bhubaneswar. In the second phase, Union Bank of India, HDFC Bank, Bank of Baroda and Kotak Mahindra Bank, will join in, extending to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. Both person-to-person (P2P) and person-to-merchant (P2M) transactions can be done using QR codes displayed at different stores.
Last year, the transactions using digital currency reached over a million per day. However, they have declined to about 100,000 - 200,000 transactions a day now.
eRupee was launched in two versions- eRupee retail and eRupee wholesale. eRupee retail is used to settle everyday transactions between consumers and businesses by the general public, similarly to how cash is used. However, eRupee wholesale is used by financial institutions for interbank settlements and other wholesale transactions.
According to a statement made by RBI Governor T. Rabi Shankar, there are 4.6 million retail users and 400,000 merchants using the e-rupee.
As of March 2024, the total e-Rupee in circulation reached Rs. 234.12 crore, a substantial increase from Rs. 16.39 crore at the end of the financial year 2022-23. This includes Rs. 234.04 crore in the retail segment and Rs. 8 lakh in the wholesale segment.
The breakdown of circulation by denomination is as follows:
Rs. 500 notes: Rs. 1,643 crore
Rs. 200 notes: Rs. 32 crore
Rs. 100 notes: Rs. 20.73 crore
Additional smaller denominations include:
Rs. 50: Rs.0.39 crore
Rs.20: Rs.0.23 crore
Rs.10: Rs.0.15 crore
Rs.5: Rs.0.12 crore
Rs.2: Rs.0.06 crore
Rs.1 and 50 paise: Rs.0.04 crore and Rs.0.01 crore, respectively
The key features of eRupee include the following:
The eRupee is issued by the RBI and is recognized as the legal tender, being a secured form of payment accepted by individuals, businesses, and governmental bodies.
The issue of eRupee follows RBI’s financial policy and hence is a safe form of currency.
The holders of eRupee have the freedom to convert Digital Currency to physical cash via commercial banks.
CBDCs can have programmable features, such as smart contracts, enabling automated, self-executing financial agreements.
Failure to adopt eRupee in India
The advancements in technology have driven a shift from the traditional method of payment to online method in recent years. The government has taken many initiatives such as Digital India to revolutionise the way financial transactions are conducted. The introduction of UPI made digital payments fast, secure, seamless and widely accessible. The RBI has reported a two-fold increase in digital payments in India since 2018. In 2022, India registered a record of Rs.149.5 trillion UPI and card transactions. The following charts show the different modes and channels of payments used in India:
However, among these online payment methods, eRupee is not quite popular with only about 150,000 transactions on an average taking place on a daily basis. The reason for its unpopularity includes the various challenges and concerns faced by CBDC. Some of these are as follows:
The eRupee transactions can be easily monitored and tracked which compromises individual financial privacy. This raises privacy concerns regarding CBDC.
eRupee is also vulnerable to cyber attacks. Specific measures to protect its integrity are required.
Its widespread usage can potentially cause bank run leading to the disruption of the traditional banking system.
Absolute anonymity, supported by digital currency, may fuel money laundering and terrorist financing activities. Hence, defining the right regulatory framework with restrictions and gatekeeping conditions is a must.
Looking at the global scenario, as of September 2024, there are 134 countries in the process of exploring CBDC, a number that covers 98% of the global Gross Domestic Product (GDP). 10 countries have launched a CBDC, the first of which was the Bahamian Sand Dollar in 2020, and the latest was Jamaica’s JAMDEX. The Central Bank of Brazil is developing a digital version of the Brazilian currency, called Drex, which is expected to be released by early 2025. The Bank of England published a Consultation Paper in early 2023 that explores the need for a digital pound.
The latest figures show that all G20 countries are looking into CBDCs, with 44 countries piloting the digital currencies, up from 36 last year, including major economies like China and South Korea. China was the first large economy to pilot a CBDC in April 2020.
However, when it comes to India, there is little awareness about eRupee in the country. The government needs to take strong initiatives to promote the awareness and acceptability of eRupee. Campaigns, educational programs, and collaborations with banks and fintech companies are enhancing public understanding of these systems. This growing awareness signifies a significant step toward a more inclusive and digitally-driven economy.
The Future of eRupee in India
The future of the e-Rupee in India looks promising, with the potential to revolutionize the country’s financial landscape. As a digital currency issued by the Reserve Bank of India (RBI), the e-Rupee aims to enhance financial inclusion, reduce dependence on cash, and increase the efficiency of transactions. With its integration into digital payment systems like UPI, it is expected to gain widespread adoption, making it easier for citizens to transact digitally. The e-Rupee could streamline monetary policy, reduce transaction costs, and support faster, cheaper cross-border payments. However, its success hinges on overcoming challenges to public trust, cybersecurity risks, and the adaptation of traditional banking systems. If these hurdles are managed effectively then e-Rupee could transform India’s financial ecosystem, ensuring greater transparency and a more inclusive economy.
How the e-rupee fits into India's vision of a cashless economy ?
The e-rupee is central to India’s vision of a cashless economy, offering a secure, digital alternative to physical currency. By promoting seamless, fast, and transparent transactions, it enhances financial inclusion and reduces reliance on cash. The digital currency supports the broader goal of digitizing financial systems, improving efficiency, and fostering economic growth while making transactions more accessible, especially in remote areas. The e-rupee also aligns with India’s push to modernize infrastructure, reduce fraud, and simplify monetary policies, helping build a more inclusive and tech-driven economy
India’s bold step towards widespread e-rupee usage.
India has taken significant strides toward the widespread use of its digital currency, the e-rupee, marking a bold step in the country’s financial landscape. The Reserve Bank of India (RBI) launched the pilot phase of the digital rupee (e-rupee) for both the wholesale (eRs.-W) and retail (eRs.-R) segments in late 2022 and 2023. The aim is to make digital transactions more efficient, secure, and cost-effective, and to reduce reliance on physical currency.
A bold move by India, the widespread adoption of the e-rupee will also contribute to strengthening the country’s digital economy and bolster efforts to streamline monetary policy. India’s progress in digital currency is seen as part of a larger global trend where central banks are exploring or introducing central bank digital currencies (CBDCs) to modernize financial systems and address challenges posed by cryptocurrencies.
Conclusion
Through these initiatives, India is positioning itself at the forefront of global digital currency innovation, potentially influencing how economies around the world approach the future of money.
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