e rupi

RBI Unveils E-Rupi – the Future of Currency? [2023]

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The Reserve Bank of India (RBI) has recently released the Central Bank Digital Currency (CBDC), commonly referred to as the digital rupee or e-rupi. This new form of currency is set to revolutionize the way people conduct financial transactions and could potentially provide an improved economic foundation for India.

What is e-RUPI ?

  • The RBI has created digital legal tender known as CBDC or e-rupi.
  • It is interchangeable with fiat money on a one-to-one basis, except that it is not made of paper (or polymer) like actual cash.
  • It is fungible legal money for which bank accounts are not required.
  • CBDC or e-rupi will show on the RBI’s balance sheet as a liability (circulating currency).
  • The e-rupi is a digital token that represents a claim on the central bank and will act as the digital version of a banknote that may be electronically transferred from one holder to another.
  • A token CBDC is a “bearer-instrument” similar to a banknote, meaning that whoever “holds” the tokens at a particular moment is believed to be the owner.
  • E-rupi will be supplied by banks in the same denominations as paper cash and coins.
  • The platform has been developed by the National Payments Corporation of India (NPCI)Department of Financial Services, Ministry of Health and Family Welfare and the National Health Authority and it will be a person-specific and purpose-specific payments system.

How is RBI introducing the CBDC or e-rupi?

  • Four cities will initially be included in the pilot programme: Mumbai, New Delhi, Bengaluru, and Bhubaneswar. Later, it will reach Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.
  • The RBI issued 2 Crores to four banks.
  • A subset of clients in the designated cities will get CBDC wallets with digitally produced notes bearing the RBI Governor’s signature.
  • For these transactions, the banks chose a closed user group of 50,000 clients and merchants who were required to download a digital rupee QR code.
  • The participating banks will provide a digital wallet that will be kept on mobile phones and other devices.
  • Banks send SMS messages to select consumers with links to the Android Play Store to download bank-specific CBDC applications for transactions.
  • Customers with debit card information generated an e-wallet using the application.
  • Customers then stocked their wallets with funds, which were transferred from their bank accounts in the form of tokens.
  • This currency was used to do business with businesses or individuals having a comparable wallet.
  • Both person-to-person and person-to-merchant transactions are possible (P2M). QR codes will be available at merchant locations for P2M transactions (such as shopping).
  • This money may be redeemed back to the bank account at the end of the day.
  • Eight banks will participate in the pilot — State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank will join in the trial programme in the first four locations, followed by Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank.

What are the types of e-rupi?

  • Retail CBDC or e-rupi is an electronic form of currency intended mainly for retail transactions, which is theoretically usable by almost everyone and may enable access to secure money for payments and settlements.
  • Wholesale CBDC or e-rupi is confined to a few financial institutions. It intends to revolutionise the settlement systems for financial transactions conducted by banks in the government securities (G-Sec) sector and inter-bank market and to make the capital market more effective and safe in terms of operating expenses, collateral use, and liquidity management.

What are the benefits of e-rupi?

The new currency is an important step forward in Indian economic and financial policy and offers several benefits to consumers.

First, CBDC provides a convenient way for individuals to make secure payments without having to use physical money or credit/debit cards. It eliminates the need for carrying around cash or worrying about theft while making real-time payments with only a few clicks. Additionally, it enables faster processing time compared to using traditional bank transfers.

Moreover, CBDC can help reduce transaction costs for businesses by eliminating fees associated with payment systems such as those used by banks or credit card companies.

  • Decreased reliance on cash
  • Reduced transaction costs result in a rise in seigniorage.
  • Reduced settlement risk – When CBDC is used instead of bank balances, and interbank settlement is no longer required.
  • It is possible to lower the cost of printing, transporting, storing, and distributing cash.
  • Globalization of payment systems in real-time and at a low price.

How e-RUPI will be utilised?

  • According to the government, e-RUPI is expected to make sure a leak-proof supply of welfare services.
  • It may also be used for delivering services under schemes meant for providing drugs and dietary support under Mother and Child welfare schemes, TB eradication programmes, drugs & diagnostics under schemes like Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, fertiliser subsidies and so on.
  • The government also stated that even the private sector can leverage these digital vouchers as a part of their employee welfare and corporate social responsibility programmes.
e-RUPI
E- Rupi

How is CBDC or e-rupi different from other wallets?

  • UPI-based applications such as Google Pay and Paytm have daily and per-transaction spending restrictions. However, the RBI has not set a limit on the amount of digital rupees that may be held in digital wallets.
  • Digital rupee transactions over Rs 2 lakh may be reported for tax purposes.

How is CBDC or E-Rupi different from cryptocurrency?

  • It is supported by the Reserve Bank of India, as opposed to private virtual currencies such as Bitcoin, which are not backed by any commodities or Central Banks and have no inherent value.
  • Private currencies do not reflect the debt or liability of any individual and have no issuer. 
  • The intrinsic architecture of cryptocurrencies is more oriented toward circumventing the existing and regulated intermediation and control systems, which might result in an unstable monetary and financial ecology.

Will CBDC or E-Rupi work in offline mode?

  • There is currently no indication from the RBI that the e-rupee would work offline; offline capability will enable CBDC transactions in locations with poor or no Internet access and generate digital footprints of the unbanked people inside the financial system.
  • In offline mode, the possibility of ‘double-spending’ exists since it is theoretically possible to utilize a CBDC unit more than once without updating the CBDC ledger.

Other international examples of a voucher-based welfare system?

  • Within the US, there is the system of education vouchers or school vouchers, which is a certificate of government funding for students chosen for state-funded education to create a focused delivery system. These are basically subsidies given straight to parents of students for the specific objective of educating their children.
  • Along with the US, the school voucher system has been utilized in a number of different countries such as Colombia, Chile, Sweden, Hong Kong, and so on.

In conclusion,the Central Bank Digital Currency has the potential to revolutionize the Indian economy. It will provide users with a safe and secure digital currency, while also increasing transparency. Moreover, it could reduce transaction costs and increase financial inclusion in India. The Reserve Bank of India (RBI) is setting a precedent that other banks may follow as they look to modernize their own currency networks. As such, it is an important and exciting development for both Indian citizens and the global economy.

National Payment Corporation Of India

  • National Payment Corporation of India is an organisation that is liable for operating retail payments and settlement systems of India.
  • It was started by the Reserve Bank of India and the Indian banks’ association.
  • Works under the provision of Payment and Settlement Systems Act 2017 so as to create strong payment and settlement infrastructure in India. 
  • A non-profit organisation that works under the powers of section 8 of the Companies Act 2013. 
  • NPCI is also liable for maintaining the infrastructure for the banking system in India to facilitate physical and electronic payment and settlement systems in India by means of the use of technology.
  • National Payment Corporation of India brings innovation within the payment system of India by utilising technology.
  • Its promoter is SBI, PNB, Bank of Baroda, Canara Bank, UBI, Bank of India, ICICI bank, HDFC bank, Citibank and HSBC.

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