Digital Rupee - Everything you need to know about it!

The Reserve Bank of India has launched the Digital Rupee. The CBDC-W (The Central Bank Digital Currency- Wholesale) has been launched on December 1, 2022, as a pilot project and has created a lot of enthusiasm. Let us check out all the details on Digital Rupee and how to understand it better.

Digital Rupee has finally arrived in India and has created a lot of interest among investors and others. The service has been launched in India by RBI on a pilot basis. The concept being extremely new, there has been a lot of confusion in the minds of the general public. Let us try clearing the air about the new age currency viz Digital Rupee.

What is Digital Rupee?

Do remember that a Digital Rupee is entirely different from Cryptocurrency. It is a digital currency backed by the country's central bank - the Reserve Bank of India (RBI). It is a Central Bank Digital Currency abbreviated as CBDC.

The core purpose of launching the digital rupee lies in attempting to do away with cash money. The Digital Rupee is never affected by market forces and remains quite constant throughout. As per the launch note presented by the Reserve Bank of India is that the Digital Rupee is the official form of currency. Reserve bank of India has gone on record saying that "interchangeable one-to-one at par with the fiat currency and is the same as a sovereign currency"
digital rupee
The Digital Rupee is not going to replace the current mode of transactions in any way. They would be entirely similar to bank notes and interchangeable. It is likely to be used more frequently in digital transactions. In essence, the Digital Rupee is an electronic version of cash that is used specifically for retail transactions.

How does the Digital Rupee work?

There will be two different types of Digital Rupee versions - one of them will be used for bulk bank transactions, and another will be used for retail transactions. The digital rupee will be issued by the RBI, but the other commercial banks have the right to distribute the digital rupee.

The distribution of the digital currency will be through a token-based system. This is a virtual currency, and the sender needs to know the public key of the recipient to send the money. The transaction is completed using the recipient's private key (a special password) and the public key.

The transactions through the Digital Rupee would be largely anonymous. The larger transactions would need you to disclose the details, but the smaller amounts can go anonymously.

Why did RBI launch the Digital Rupee?

The primary reason that made the Reserve bank of India is pushing for digital currency is that it wants India to advance in the realm of virtual currencies.

If we can quote the Finance Minister, Nirmala Sitharaman,
Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system
. The concept of the Digital Rupee has been introduced through the amendment to the Reserve Bank of India Act 1934. This is an attempt to increase the scope of the definition of 'bank note.' The introduction of the Digital Rupee has been through the inclusion of currency in digital form.

The Benefits of Digital Rupee

The Digital rupee comes with a huge set of advantages and benefits. It would be a good idea to check out the different advantages that you stand to gain with the Digital Rupee would include
  • The Centralised operation- The centralized operation of the currency will ensure that you will get access to
    trust, resilience, and efficiency. Like Manoj Dalmia, Founder, and Director of Proassetz Exchange, aptly puts it, the digital currency will never be decentralized and will continue to be governed by the Reserve Bank of India
  • Easy to use -- Each of the units of the Digital Rupee is countable and can be tracked. The features such as identifiability, programmability, and distributed ledgers.
  • A Global acceptance- The digital rupee will be accepted globally. It has no geographical limitations of any nature. This can be helpful in the internationalization of your transactions.
  • No need for a bank account - The Digital Rupee, in sharp contrast to the UPI transactions, does not need a bank account. You can simply buy the digital currency and store it in a digital wallet.
  • Better transparency - The Digital Rupee does increase the level of transparency and efficiency. It is based on blockchain technology. It can be a great option to help you in terms of propagating financial inclusion.

Who are the participating banks for the Digital Rupee?

The Reserve bank of India has identified and authorized eight national sector banks to participate in the pilot for the Digital Rupee. The pilot phase will be undertaken in four cities, viz Mumbai, New Delhi, Bengaluru, and Bhubaneswar.

The banks that will manage the Digital Rupee in the pilot launch would include State Bank of India, ICICI Bank, YES Bank, and IDFC First Bank initially, and four more banks viz Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank will be joining shortly.

How to buy digital Rupee?

The Digital Rupee is currently in the pilot stage. The project will be undertaken by four public sector banks viz State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank. These banks are authorized to issue digital rupee to the users.

You can simply head to the official mobile app or website of any of the participating banks. The exact process for buying digital currency has not yet been rolled out. When the system is launched globally, you can get in making payments to the merchants through the QR codes displayed at the merchant locations.

How can you use Digital Rupee?

There are several means that you can use the Digital Rupee. As we already stated above, you can pay using the Digital Rupee by scanning the QR code at the merchant locations. Apart from that, you can also use it in online stores.

The Reserve Bank of India has stated that the Digital Rupee can assist you in the transactions between Person to Person (P2P) and Person to Merchant (P2M). The RBI has categorically indicated that "The e-Rupee would offer features of physical cash like trust, safety, and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks,".

You can even transfer the digital currency to friends if you have to. As of now, the transfer process will be supported only by designated banks. You can store the digital rupee in a wallet and transfer it to friends and family.

How is Digital Rupee different from Cryptocurrency?

Digital Rupee is not similar to Cryptocurrency. They are never linked to one another. Cryptocurrency is based on blockchain technology, and digital currency is not necessarily based on blockchain, even when it can work on that basis.

The Digital Rupee is a Central Bank Digital Currency (CBDC). The aim of the launch of the Digital Rupee is to eliminate cash transactions completely from the markets. The value factor is yet another element that differentiates the digital rupee from the cryptocurrency. Cryptocurrency is a part of the risk-driven market, and its value will change depending on the market conditions. The value of the Digital Rupee does not change with the market conditions and thus remains unaltered throughout.

The Digital Rupee is 'digital money' as opposed to paper money. The value of digital money and paper money does remain the same under all conditions.

How does Digital Rupee different from UPI?

The UPI or Unified Payment Interface is a mode of transaction or the interface used for transactions made using physical currency. Digital Currency or Digital Rupee is another form of currency that is equivalent to fiat currency.

In other words, the UPI makes use of the fiat currency for making payments, and it is an interface for the purpose. The Digital Rupee, on the other hand, is a currency in itself and is equivalent to the fiat currency. Yet another difference that you would notice with respect to the Digital Rupee and UPI is that the UPI is supported by almost every bank. The Digital Rupee will, however, is operated and managed by only a few stipulated partnering banks alone. As of now, there are only four banks partnering with the Digital Rupee initiative, with four more joining the bandwagon soon.

What are the drawbacks of the Digital Rupee?

While the Digital Rupee has been quite impressive and a unique concept that can redefine transactions and money handling, it does come with a few drawbacks as well.

To begin with, it can have a few privacy issues and can have the possibility of compromises. You can also have a few regulatory legal issues, even when such issues are yet to unfold. It is also expected to have serious concerns regarding countries that do not have full capital account convertibility.

Can you transfer Digital Rupee?

Yes, your Digital Rupee is definitely transferrable. In fact, Digital Rupee is your money in digital form. So, it can be easily transferrable to your friends and other family members.

However, as of now, the transfer of Digital Rupee can only be transferred through the participating banks, which are SBI, ICICI Bank, Yes Bank, and IDFC First Bank for now with the other four banks joining the pilot batch soon.

How safer is the Digital Rupee compared to other transactions?

The Digital Rupee is set and designed for the purpose of providing you with a safer environment for comfortable transactions. The Digital Rupee should be one of the excellent options for affordable, safer, and easier payments.

You would find the Digital Rupee to be a good option to help you by providing you with a regulated alternative to cryptocurrencies. The CBDC currency, such as Digital Rupee, can be helpful in providing you with a robust and reliable payment solution. Even the transaction costs will be considerably lower since the technology is interoperable with the other modes of other existing payment options such as UPI.

The Parting Thoughts

The pilot project launched by the RBI for the Digital Rupee is indeed a unique and perfect concept in the long run. Digital Rupe has definitely been considered to be the future of many, and you will find it a very decent option. You can keep the Digital Money in your wallet and spend it in the best way, exactly in the same way as you would spend regular cash.


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