NEW ERA DIGITAL RUPEE

THE RESERVE Bank of India (RBI) on 1st December 2022 launched the - DIGITAL RUPEE OR E-RUPEE

What is a digital rupee?

Digital rupee is a legal tender issued by the RBI in digital form. It is the same as the fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different it is not paper(or polymer)like physical cash. It is a fungible legal tender, for which holders need not have a bank account.

The e-rupee will be in the form of a digital token representing a claim on the central bank, and will effectively function as the digital equivalent of a banknote that can be transferred electronically from one holder to another. A token digital rupee is a “bearer-instrument” like a banknote, meaning whoever ‘holds’ the tokens at a given point in time will be presumed to own them.

How can an individual use the e-rupee?

E-rupee will be issued in the same denominations as paper currency and coins, and will be distributed through the intermediaries, that is banks. Transactions will be through a digital wallet offered by the participating banks, and stored on mobile phones and devices.

Transactions can be both person-to-person and person to the merchant.

A user will be able to withdraw digital tokens from banks in the same way she can currently withdraw physical cash. She will be able to keep her digital tokens in the wallet, and spend them online or in person, or transfer them via an app.

What are the benefits of e-rupee?

Digital has the potential to provide significant benefits such as reduced dependency on cash, higher seigniorage due to lower transaction costs, and reduced settlement risk. To the extent, large cash usage can be replaced by digital, the cost of printing, transporting, storing, and distributing currency can be reduced, the RBI says.

Digital rupee has some clear advantages over other digital payments systems: payments are final, and thus reduce settlement risk in the financial system.

When digital is transacted instead of bank balances, the need for interbank settlement disappears. Digital can also enable more real-time and cost-effective globalization of payment systems.

“Along with reducing operational costs associated with physical cash management, it will also enhance settlement efficiency in spur innovation in cross-border payments and offer the public the same uses as any private virtual currency without the risk associated with it”.