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Imagine a day when there will be only a mobile in the pocket having a digital wallet stored with digital money and with this, you are transacting the whole world. When for transactions you don’t need any card, simply with the help of digital transfer from your digital wallet this dream will come true.

Perhaps with the name of digital currency the first name is coming to our mind is “Bit coin” a crypto currency. Prior to 2008, nobody has heard the name of crypto currency. It is generally accepted that Satoshi Nakamoto is a pseudonym used by the individual or individuals who conceived of the original protocol for Bit Coin in 2008 and launched the network the following year. People were enticed to purchase Bitcoin by the precipitous rise in the cryptocurrency’s value.

In August 2021 value of one bitcoin was around $46000 which reached near to $68500, the highest level of its price. Due to a very high return in a short period, it attracted Indian Nationals to invest through various exchanges such as Wazir X, ZebPay, Binance, etc. Though these exchanges were following KYC norms by doing transactions on the basis of their clients through valid PAN cards. But such transactions could not be regulated as there was no transparency in these transactions.

In view of the high volatility in the value of bit coin and crypto currencies and high risk involved therein, the Govt. of India in Budget 2022 announced a flat 30% tax on gains from crypto currency transactions as well as a tax deducted at source(TDS) of 1%. Though RBI has a stand to ban all crypto currencies in India still no ban has been imposed on these currencies.

The concept of CBDCs is distinct from that of decentralized virtual currencies and crypto assets, neither of which are issued by the government. This is despite the fact that CBDCs were heavily influenced by bit coins. and do not have the status of legal tender. With the rising demand for crypto currencies, there is a rise in Govt. concerns regarding the risks associated with the same as well as its tendency to facilitate money laundering and other forms of criminal financing have given rise to the concept of CBDC, which has gained momentum as a result.

Definition of CBDC

The Reserve Bank of India refers to CBDC, which stands for “Digital Rupee e Rupee,” as a broad definition of the legal tender issued by a central bank in the form of digital currency. It is similar to sovereign paper currency but takes on a different form. It is exchangeable at the same rate as the currency that is currently in circulation, and it will be recognized as a medium of payment, legal tender, and a secure place to store value.

As a tokenized digital version of the Indian Rupee, the Digital Rupee, also known as eINR or E-Rupee, is being issued by the RBI as a central bank digital currency. Other names for the Digital Rupee include eINR and E-Rupee. The Reserve Bank derives the necessary statutory powers to manage currency from Section 22 of the RBI Act of 1934. This is due to the fact that currency management is one of the Reserve Bank’s core central banking functions.

The RBI, in conjunction with the Government of India, is responsible for the creation, production, and overall management of the nation’s currency. This is done with the intention of ensuring that the economy has access to an adequate supply of genuine and clean banknotes. In order for the RBI to be able to launch a CBDC, it had proposed some amendments to the Reserve Bank of India Act, which was passed in 1934. A proposal for the digital rupee was made in January of 2017, with the intention of launching it between 2022 and 2023. Blockchain, also known as distributed ledger technology, is being utilized by the company known as Digital Rupee.

With the pilot launch of CBDC on 1st November 2022, India has a significant step towards digitalizing its financial system and issuing of digital rupee as a legal tender. Participating financial institutions in the pilot project include SBI, Bank of Baroda, Union Bank of India, HDFC bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First bank, and HDFC. Every participating bank will conduct the e-Rupee pilot program with 10,000 to 50,000 users. NPCI, or the National Payment Corporation of India, will be in charge of managing the back-end infrastructure.

Types of CBDC to be issued

The CBDC can be broken down into two major categories, namely.

1. General purposes or retail(CBDC-R)-Primarily meant for retail transactions

2. Wholesale(CBDC-W)-would be the available to private sector, non-financial consumers, and businesses, and also meant for inter- bank transfers.

Model for issuances and management of CBDC

Two models for issuance and management of CDBC

1. Direct Model : Single tier Model. In which issuance, account keeping, and transaction verification entire work will be done by Central Bank.

2. Indirect Model: Two-tier Model. In which the central Bank and other intermediaries (banks and other service providers) each play their respective roles. In this model central bank issues CBDC to consumers indirectly through intermediaries and the claim by consumers is managed by the intermediary as the central bank only handles wholesale payments to intermediaries

Forms of CBDC

CBDC can be structured as ’token-based’ or account based. A token-based CBDC is a bearer- an instrument like Bank Notes means whosoever holds the token at a given time would be presumed to own them.

In contrast, an account-based system would necessitate the maintenance of records of balances and transactions for all CBDC holders and would require monetary balances to be marked as belonging to their respective owners.

Reasons for the launch of digital currency

  1. Recently, crypto currency offers a secure and real-time money transfer option. But it is unregulated and most countries do not encourage crypto currency, while CBDC will provide similar benefits in a legal and secure manner.
  2. Digital payment platforms are mostly private entities. With CBDC the government can strengthen its presence in digital payments through RBI. With the legal tender character, more people will accept digital payments in India.
  3. In physical currency huge costs of printing and transportation are involved. Digital currency will almost reduce these costs to negligible.
  4. It will give a new horizon to the money transfer system as it will work 24×7 and minimize transaction-related expenses.
  5. This will move the country towards cashless economy.
  6. With the digitalization of Rupee it will provide a remedy for fast, transparent, of all economical transactions under Govt. sponsored schemes at a minimal cost. To the genuine beneficiaries.
  7. Programmable- A CBDC could provide a direct channel for central bankers to take actions like modifying interest rates.
  8. Will work as an effective tool against money laundering.
  9. Will contain entire counterfeiting of currency notes as the CBDC will be issued in digital form.

Difference between Crypto and Digital Rupee

CryptoDigital Rupee
Issuing Issuing AuthorityPrivate operators through miningCentral Bank i.e RBI

Created by RBI as Physical currency alternative is a sovereign currency, which can be converted digital money into cash
Legal StatusNot a Legal TenderLegal Tender. which can be used even if someone doesn’t have a bank account. Its value is always the same as physical currency
Block ChainUsing a private block chain, always exists on a block chain. For example, a block chain is a global distributed ledger consisting of data blocks sequentially linked in a chain Digital Currency does not necessarily need a block chain to function.
TransparencyNo transparency in transactions Transactions are totally transparent


Concludingly, we can say Digital Rupee will be the future currency of India to some extent because our country is a poor country and largely dependent on cash transactions. The importance of physical cash will always be there. Though after the demonetization of Rs.500 and Rs.1000 Notes on 8th November 2016 the habit of cash has somehow changed to digital transactions through UPI, IMPS, NEFT, and RTGS. But the Unified Payment Interface System through BHIM app changed the mindset of the general masses. The growing digital transactions as detailed below prove that as and when CBDC digital e-Rupee will be fully operational, it will bring a revolution in our country, together with the existence of physical cash.

  • In 2017, UPI recorded a YoY growth of 900% processing over 199 million transactions worth INR 67 billion.
  • In 2018, the YoY growth was 246% with transactions worth over INR 1.5 trillion processed.
  • In 2019, the YoY growth was 67% with transactions worth 2.9 trillion processed.
  • In 2020, UPI recorded a YoY growth of 63% with transactions of over INR4.3 trillion processed in December 2020.
  • In 2021, the Yoy growth was 72% with over 1.49 billion transactions worth INR 5.6 trillion processed in June 2021.
  • At the end of the calendar year 2022 UPI’s total transactions value stood at INR 125.95 trillion up 1.75x year on year, as per NPCI. Interestingly, the total UPI transaction value accounted for nearly 86% of India’s GDP in FY 22.
  • At the end of the calendar year 2023 UPI total transactions may reach 83.75 billion.

The Reserve Bank of India started its retail pilot project of central bank digital currency in Mumbai, New Delhi, Bengaluru and Bhubneshwar with the initial participation of 4 banks viz State bank of India, ICICI Bank, Yes Bank and IDFC First Bank and the remaining banks soon be joining. Though we have moved one step forward towards digital currency but to reach at the fully operational level, the target is far ahead.


And consolidated by

B.S. Khatri

Retired General Manager RBI Jaipur

(Disclaimer: The views expressed in the article are his own and do not represent the views of his Institution.

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