India’s Digital Rupee or CBD How is it different from Cryptocurrency?

The Reserve Bank of India (RBI) declared that the retail digital rupee (e-R) first pilot would begin on December 1. With this momentous development, anyone will be able to make retail purchases using India’s first central bank digital currency (CBDC). It is the first digital currency issued by a central bank in India that may be used for retail transactions (CBDC). It is also issued by the Reserve Bank of India, much like paper money. The RBI stated that “the e-R would be in the form of a digital token that represents legal tender.”

How is it different from cryptocurrency?

A CBDC, often known as a digital or virtual currency, is the digital rupee. It is distinct from the private virtual currencies or cryptocurrencies that have exploded over the past ten years, such as Bitcoin, Ethereum, etc. Since there is no issuer, private virtual currencies do not represent any person’s debt or liabilities.

How will e-rupee work?

Through a token-based system, e-rupees will be distributed to the entire public. The recipient’s public key must be known by the person transferring the digital money. The recipient’s private key (a special password) and the public key are both used to complete the transfer. The RBI concept note stated that unique tokens based on approved methodologies would need to be manufactured, which may be slightly resource-intensive.

Transactions are likely to be somewhat anonymous; those involving larger sums may be required to be reported, whilst those involving lesser sums may be completely anonymous, exactly like with cash transactions.

The RBI opposes the e-rupee receiving interest. It contends that customers might withdraw money from banks and convert it to digital form if the e-rupee accrues interest, which would have an impact on India’s banking and financial system.

Which Banks are responsible for the distribution of CBDC the Digital Rupee?

Eight banks have been chosen to take part in this pilot project in phases. SBI, ICICI Bank, Yes Bank, and IDFC First Bank would be the first four institutions in the country to participate in the first phase. Later on, this pilot will include four additional banks: Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank. The RBI stated that the currency “will be issued in the same denominations that paper currency and coins are currently issued.”

How Can You Use It?

The RBI announced that customers will be able to utilize the electronic rupee, or e-R, for transactions through a digital wallet made available by the participating banks and kept on mobile phones or other devices. P2P (person-to-person) and P2M (person-to-merchant) transactions are both possible. Banks will act as middlemen in the distribution of the retail digital rupee.

Will it be implemented across all of India?

No. The pilot program, according to the RBI, would initially focus on Mumbai, New Delhi, Bengaluru, and Bhubaneswar before expanding to include Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. The pilot’s scope may be gradually expanded as needed to cover additional banks, users, and locations.

The closed user group (CUG), which consists of participating customers and businesses, would cover a few areas in the trial, according to the RBI.

Expert Opinion

“This reflects the consistent efforts on the side of the RBI to bring out an effective, user-friendly mechanism of digital money far ahead of other central banks throughout the world,” said Jyoti Prakash Gadia, managing director of Resurgent India.

Gadia continued by saying that the model adopted for the retail rupee is distinct from the one previously announced for the wholesale rupee, which is utilized by banks for transactions involving government securities. The token-based system for retail, as announced by the RBI, is better suited for everyday retail customers, both for individual customer transactions with chosen merchants and also for one person with another person, initially to be utilized within the chosen closed group.

“The Reserve Bank of India’s central bank digital currency (CBDC) strives to deliver the promise of affordable, safe, and simple payments for all,” said Jaya Vaidhyanathan, CEO of BCT Digital. The CBDC would result in more strong and dependable payments, reducing the dependence on cash, because it offers a regulated alternative to cryptocurrencies in the market.

The underlying technology, according to Vaidhyanathan, would reduce transaction costs. It will complement current methods like UPI and be compatible with other payment systems, complete the ecosystem for mobile payments.