RBI's CBDC e-rupee: Know everything about it

The RBI's Central Bank Digital Currency (CBDC) is one of India's digital currency projects employed to settle government securities transactions in secondary markets. Many banks have participated in the wholesale digital rupee, including the State Bank of India, Union Bank of India, Bank of Baroda, etc.

What is the CBDC e-rupee?

According to a concept note released by the RBI in October 2022, the Central Bank Digital Currency (CBDC) is a legal tender issued by the regulator. It is also recognised as the e-rupee or digital rupee; the CBDC of RBI works the same way as that of a sovereign currency and can be exchanged with the fiat currency regulated by the RBI.

The components of CBDC are based on blockchain technology, and the e-rupee has been launched in both the retail and wholesale segments. The digital rupee has been issued with the same denomination as the coins and paper currency.

Features of the CBDC e-rupee

The following are the features of the CBDC e-rupee –

●       It is a currency issued by the central bank, which also aligns with monetary policies.

●       It must be accepted as a legal tender, payment medium, and a value-safe store by all government agencies, enterprises, and citizens.

●       CBDC is a liability on the central bank's balance sheet.

●       You do not need a bank account for CBDC to be used as legal tender.

●       You can convert CBDC freely against the cash and money of a commercial bank.

●       The expectation from CBDC is to reduce the cost of issuance of transactions and money.

Difference of CBDC e-rupee from money in digital form

The significant difference between the money in digital form and the CBDC e-rupee is that CBDC is a liability of the RBI. In contrast, the money in digital form is from the commercial bank. Due to being a direct liability of the RBI, the retail CBDC can provide you access to safe money for settlement and payment.

Why was CBDC introduced?

RBI introduced CBDC e-rupee for a variety of reasons. These include:

●       The Reserve Bank of India has introduced CBDC to be compatible with the current forms of money used instead of replacing them.

●       It would also provide an extra avenue of payment to users.

●       RBI believes that this digital rupee system would strengthen India's economy, increase the efficiency of the payment and monetary systems and increase financial inclusion.

●       Through CBDC, you can reduce the cost of managing cash, leading to digitisation in achieving an economy that uses less cash.

●       Further, CBDC also helps motivate innovation, efficiency, and competition in payments, while exploring the cross-border transaction of the digital rupee.

●       CBDC also beats cryptocurrency in providing you with better benefits and advantages compared to cryptocurrencies and money in the digital form.

Conclusion

The digital rupee or e-rupee differs from money in digital form and cryptocurrency. Compared to CBDC, cryptocurrencies have significant risks related to money laundering and terrorism financing. Contrary to that, CBDC provides a risk-free virtual currency with the best legal benefits possible.

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