What Is Digital Currency?

• Digital currency (digital money, electronic money or electronic currency) is any currency,
money, or money-like asset that is primarily managed, stored or exchanged on digital
computer systems, especially over the internet.
• Types of digital currencies include cryptocurrency, virtual currency and central bank
digital currency.
• Digital currency may be recorded on a distributed database on the internet, a
centralized electronic computer database owned by a company or bank, within digital
files or even on a stored-value card.

What is Digital Rupee or e-rupee?

• The Central Bank Digital Currency (CBDC) can be defined as the legal tender issued by
the Reserve Bank of India, according to the concept note. Touted as Digital Rupee or e-
Rupee, RBI's CBDC is the same as a sovereign currency and is exchangeable one-to one
at par with the fiat currency.

Key features of e-rupee:

• Instant Transactions: e₹ allows for real-time, instant payments and transfers, enabling
swift and efficient financial transactions.
• Security and Transparency: Built on a secure blockchain network, e₹ ensures tamper-
resistant records and transparent transaction histories, enhancing trust and reducing
the risk of fraud.
• Accessibility: e₹ promotes financial inclusion by providing banking services to unbanked
and underbanked populations, fostering economic empowerment for all.
• UPI Interoperability: Union Bank of India’s Digital Rupee offers seamless payment
experience through interoperability with UPI
• Auto Load: This feature in Union Bank of India’s Digital Rupee wallet automatically adds
funds when the balance is low, ensuring seamless transactions upto Rs.2000/-
• Lower Transaction Costs: By eliminating intermediaries and streamlining processes, e₹
reduces transaction costs, making it an attractive option for individuals and businesses.
• Privacy Protection: e₹ balances the need for transparency with user privacy, ensuring
secure and confidential transactions.
• Reduced Counterfeit Risk: As a digital currency, e₹ minimizes the risk of counterfeit
notes, enhancing the overall security of financial transactions.
• Regulatory Compliance: Union Bank of India ensures that e₹ adheres to all relevant
regulations, safeguarding the integrity of the financial ecosystem.
• Environmentally Friendly: e₹ have the potential to reduce the environmental impact
associated with physical currency production and transportation.

Objectives of e-rupee:

• Financial inclusion: The e-Rupee aims to increase financial inclusion in India, especially
in remote areas with poor connectivity.
• Cost reduction: The e-Rupee aims to reduce the costs associated with managing
physical cash, such as printing, storage, and transportation.
• Digital payments: The e-Rupee aims to increase the adoption of digital payments.
 • Security: The e-Rupee aims to provide a safe digital currency without the risks
associated with cryptocurrency.
• Efficiency and transparency: The e-Rupee aims to bring efficiency, transparency, and
security to the financial system.
• Environmental impact: The e-Rupee has the potential to reduce the environmental
impact of producing and transporting physical currency.
• Counterfeit risk: The e-Rupee aims to minimize the risk of counterfeit notes.

Digital Currency Benefits:

• Faster payments. Using digital currency one can complete payments much faster than
current means, which can take days for financial institutions to confirm a transaction. ©
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• Less expensive international transfers. International currency transactions are very
expensive; individuals are charged high fees to move funds from one country to another,
especially when it involves currency conversions. Digital assets are disrupting this
marketing by making it faster and less costly.
• 24/7 access. Existing money transfers often take more time during weekends and
outside normal business hours because banks are closed and can’t confirm
transactions. With digital currency, transactions work at the same speed 24 hours a day,
seven days a week.
• Peer to peer transaction: ‘Save extra cost’, is the utmost persuading factor for all. Earlier,
the presence of middlemen in the financial blockchain incurred extra cost on the
transactions. The appeal of P2P is that one can transfer wealth or ownership of
commodities without the involvement of a third party. A peer-to-peer transaction is
transparent, secured and less complicated. In short, peer-to-peer transactions offer
privacy and no additional cost on the transfer.
• Ease of use: The advent of digital currencies is paving the way for endless opportunities.
The undebatable advantage of digital currencies is its ease of use. Having a smart
device allows us to be your own bank and make transactions much easier and time

Digital Currency Disadvantages:

• Too many currencies to navigate at the moment: The current popularity of

cryptocurrency is actually a downside. There are so many digital currencies being
created across different blockchains that all have their own limitations. It will take time
to determine which digital currencies may be appropriate for certain use cases,
including whether some are designed to scale for mass adoption.
• Takes effort to learn how to use them: Digital currencies require work on the part of the
user to learn how to perform fundamental tasks, like how to open a digital wallet and
properly store digital assets securely. For digital currencies to be more widely adopted,
the system needs to get simpler.
• Blockchain transactions can be expensive: Cryptocurrencies use the blockchain, where
computers must solve complex equations to verify and record transactions. This takes
considerable electricity and gets more expensive as there are more transactions. These
would probably not exist for a CBDC, however, since it would likely be controlled by the
central bank and the complex consensus processes are not needed.
 • Large swings in digital currency prices: Cryptocurrency prices and value can change
suddenly. Cunha believes this is why businesses are reluctant to use it as a medium of
exchange.

How will e-RUPI work?

• e-RUPI is a cashless and contactless digital payment medium.

• This will essentially be like a prepaid gift-voucher that will be redeemable at specific
accepting centres without any credit or debit card, a mobile app or internet banking.
• e-RUPI will connect the sponsors of the services with the beneficiaries and service
providers in a digital manner without any physical interface.

Comparison with Other Digital Payment Systems:

1. The main differences between UPI and e-Rupee are that e-Rupee is a digital version of
the Indian rupee, while UPI is a payment system:
• Nature: e-Rupee is a digital form of the Indian rupee, while UPI is a payment system that
enables immediate transfers between bank accounts.
• Function: e-Rupee is a form of money that can be used for payments, as a unit of
account, and as a store of value. UPI is a payment system that allows for the transfer of
funds.
• Transactions: e-Rupee transactions occur between digital wallets, while UPI
transactions occur between bank accounts.
• Centralization: The Reserve Bank of India (RBI) issues and controls the e-Rupee, which
runs on a centralized infrastructure.
• Security: e-Rupee is issued by the central bank and is intended to be a safe store of
value. UPI is a convenient payment system, but some say that e-Rupee could be better
for large-scale transactions or corporate banking.

2. The main differences between cryptocurrency and e-Rupee are:

• Issuer: E-Rupee is issued and regulated by the central bank, while cryptocurrencies are
decentralized and not backed by any central authority.
• Security: E-Rupee is considered to be secure and reliable, while cryptocurrencies are
subject to security risks such as hacking and theft.
• Purpose: E-Rupee is designed to be used in day-to-day transactions, while
cryptocurrencies are primarily used for investment purposes.
• Stability: E-Rupee will enjoy the same stability in value as the rupee, while
cryptocurrencies can be very volatile.

Features of Digital Rupee:

• CBDC is a sovereign currency issued by central banks in alignment with their monetary
policy.
• It appears as a liability on the central bank’s balance sheet.
• It must be accepted as a medium of payment, legal tender, and a safe store of value by
all citizens, enterprises, and government agencies.
• CBDC is freely convertible against commercial bank money and cash.
• CBDC is a fungible legal tender for which holders need not have a bank account.
 • CBDC is expected to lower the cost of issuance of money and transactions.

Why is RBI introducing CBDC?

• CBDC is aimed to complement, rather than replace, current forms of money and is
envisaged to provide an additional payment avenue to users, not to replace the existing
payment systems.
• RBI believes that the digital rupee system will "bolster India’s digital economy, enhance
financial inclusion, and make the monetary and payment systems more efficient."
Pointing out the motivations for India to consider issuing CBDC, RBI mentioned these
reasons:

a) Reduction in cost associated with physical cash management

b) To further the cause of digitisation to achieve a less cash economy.

c) Supporting competition, efficiency, and innovation in payments

d) To explore the use of CBDC for improvement in cross-border transactions

e) Support financial inclusion

f) Safeguard the trust of the common man in the national currency vis-à-vis proliferation of
crypto assets

In May 2020, China started testing its Digital Yuan-- Digital Renminbi (RMB). Several other
nations have also started research and pilot projects related to CBDC such as Canada, USA and
Singapore. Also, China and USA are battling to gain the supremacy across markets with the
introduction of new-age financial products and India may get caught up in this digital proxy war.
Furthermore, there's a wide disconnect between the number of bank accounts and mobile
phone connections in India, and CBDC can possibly bridge this gap

• The Digital Rupee provides India with the opportunity to establish the dominance of
Digital Rupee as a superior currency for trade with its strategic partners, thereby
reducing its dependency on the dollar.
• It will also help India in addressing the malpractices such as tax evasion, terror funding,
money laundering, etc., as the central bank can keep a check on every unit of the digital
currency.
• CBDC will empower RBI to control monetary policies. These effects of monetary
policies can be immediately reflected instead of relying on commercial banks to make
changes when they deem fit.
• It will also empower RBI to monitor transactions and credit flow across the Indian
economy, weeding out scams, frauds instantly, thereby protecting depositors' money.
• CBDC will also help in distracting the investors from investing in the current crypto
assets that are highly risky.
• It will also turn every large technology company in a fintech company nullifying the need
for permission or partnership with a bank. It will create incentives for the companies and
provide financial assistance to those who have been at the mercy of banks.
• It will also make loans, insurance, stocks and other financial products a natural
extension using programmable smart contracts.
What are the use cases of e-RUPI?

• e-RUPI is expected to ensure a leak-proof delivery of welfare services.

• It can also be used for delivering services under schemes meant for providing drugs and
nutritional support under Mother and Child welfare schemes, TB eradication programmes,
drugs & diagnostics under schemes like Ayushman Bharat Pradhan Mantri Jan Arogya Yojana,
fertiliser subsidies etc.

• The government also said that even the private sector can leverage these digital vouchers as
part of their employee welfare and corporate social responsibility programmes.

Benefit for MSMEs:

• This may allow MSMEs to send money to beneficiaries including employees and non-
employees to ensure it is used for the required purpose, for instance, skill development courses
and social welfare measures as well.

• It will see higher adoption rate in rural and distant areas effectively that are currently a hub of
small businesses.

• e-RUPI has a significant potential to support small businesses in taking direct benefit from a
multitude of governments schemes as well. For Example, under the Make in India initiative,
financial assistance to MSMEs in ZED Certification (Zero Defect and Zero Effect practices) is
being offered that can be passed on to them using this platform.

• The digital voucher can potentially be utilized to manage the working capital gap of the MSMEs
such as enabling them to make GST or Provident Fund or Employee State Insurance payments
utilizing e-RUPI and hence, shortening the working capital cycle significantly.

• Quicker receipt of financial subsidies and benefits under various schemes will result in
improved working capital management & better financial liquidity for the small enterprises.

Benefits for Corporates:

• Corporates can enable well-being of their employees

• End to end digital transaction and doesn’t require any physical issuance hence leading to cost
reduction

• Voucher redemption can be tracked by the issuer

• Quick, safe & contactless voucher distribution

Benefits for Hospitals:

• Easy & Secure - Voucher is authorized via a verification code

• Hassle free & Contactless payment collection - Handling of cash or cards is not required

• Quick redemption process - The voucher can be redeemed in a few steps and lesser decline
due to pre-blocked amount
Benefits to the Consumer:

• Contactless - Beneficiary should not carry a print out of the voucher

• Easy redemption - 2 step redemption process

• Safe and Secure - Beneficiary doesn’t need to share personal details while redemption hence
privacy is maintained

• No digital or bank presence required - Consumer redeeming the voucher need not have a
digital payment app or a bank account

Move towards a Digital Currency?

• The government is already working on developing a central bank digital currency and the
launch of e-RUPI could potentially highlight the gaps in digital payments infrastructure that will
be necessary for the success of the future digital currency.

• In effect, e-RUPI is still backed by the existing Indian rupee as the underlying asset and
specificity of its purpose makes it different to a virtual currency and puts it closer to a voucher-
based payment system.