E-Rupee: India’s Digital Currency Explained

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  • 09 May 2023

It’s all over the news. The Reserve Bank of India (RBI) is soon to launch its very own digital currency.

The central bank has imagined this new digital currency – the e-rupee – in two forms: wholesale e-rupee for interbank settlements and retail e-rupee for the public.

But can everyone use this digital currency? What are its features? And how does it differ from UPI transactions and cryptocurrencies?

There are a lot of moving parts – let’s walk through it one step at a time.

The Digital Rupee or e₹ or E-Rupee is a digital version of the Indian Rupee and it is planned to be issued by the Reserve Bank of India as a central bank digital currency (CBDC).

What is CBDC, you ask?

It’s a digital currency which is issued by the central bank of a sovereign nation. So, it’s your regular, sovereign-backed currency, only in a digital format.

By definition, CBDCs are freely convertible against the physical currency issued by the same central bank.

Similar to physical currency, one doesn’t need to have a bank account to transact using CBDCs either. CBDCs are managed on a digital ledger which may or may not be blockchain enabled.

So, the e-rupee, which will be issued as a CBDC and can be used as a digital currency without the need of having a bank account.

India’s foray into CBDC was announced by the Finance Minister Nirmala Sitharaman during the recent budget presentation. The Centre discussed the idea of having CBDC as a counter to the growing popularity of cryptocurrencies, which as per the RBI as well as the government, has the potential to be used for criminal activities.

And after researching the feasibility, the central bank recently launched its pilot programme for the e-rupee or India’s CBDC which commenced on November 1st.

As per the RBI, the e-rupee boasts of the following features…

  • Issued and guaranteed by the RBI
  • A legal tender
  • Accessible by anyone who owns a phone
  • One does not need a bank account to transact it
  • To be released in two forms: wholesale for interbank settlements and retail for the public
  • While issued by the RBI, commercial banks can distribute the digital currency further
  • Can be held in an e-wallet provided by a bank or any registered service provider
  • It can be accepted as a medium of payment across India
  • And unlike cryptocurrencies, which are private in nature, it will be issued and controlled by the central bank itself.

Before the e-rupee pilot, the RBI made clear that it is very different from cryptocurrency, their purely digital existence notwithstanding.

E-rupee is different from cryptos in that it is controlled by the RBI. Unless cryptocurrencies, which are decentralized and can’t be controlled by any governing entity or sovereign nation, the e-rupee is centralized in nature.

As for UPI – UPI is just a digital interface used to transfer money in your bank account. That means every rupee transferred through UPI is backed by physical cash in your bank account. E-rupee, on the other hand, is cash but not physical – it’s virtual and you don’t need any cash in your bank account to back it. E-rupee, in itself, is cash.

So far, so good!

Let us now quickly go over the recent developments around e-rupee.

The RBI has rolled out a pilot of e-rupee enlisting nine private and state-owned banks to conduct interbank transactions with this form of currency.

This new pilot, the first of several, will test the digital rupee in what the RBI calls the “wholesale segment for e-rupee.

The RBI stated the use case for this pilot is the settlement of secondary market transactions in government securities. The nine banks included in the pilot are the Kotak Mahindra Bank, State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Yes Bank, IDFC First Bank, and HSBC.

Eventually, the digital rupee will also be piloted in retail banking for public use and the RBI plans to roll our within a month.

It said that the e-rupee can be structured as token-based or account-based. A token-based CBDC would be a bearer instrument like banknotes and the person receiving a token will verify that the ownership of the token is genuine.

On the other hand, an account-based system would require maintenance of record of balances and transactions of all holders of the CBDC and the ownership of the monetary balances. An intermediary will verify the identity of an account holder.


The above move will definitely help the economy in many ways – it will pave the way for a cashless economy, it will make cross-border transactions easier, and reduce the cost in handling physical cash.

However, CBDCs can also pose certain risks and to tackle them India will need a secure and resilient CBDC infrastructure which can be scaled for mass adoption.

Stay tuned to Kotak Securities for more interesting updates from this space.

Sources: RBI, Economic Times, World Economic Forum

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