What Is Digital Rupee & How Does it Work?
Central Bank Digital Currency (CBDC) is one of numerous trends that experts believe will enhance cross-border payments. The term "Central Bank Digital Currency" describes a virtual currency that is produced and distributed by a central bank. It resembles cryptocurrencies.
The decentralized nature of cryptocurrencies, such as Bitcoin and Ethereum, and their correlation with fiat currencies like the US dollar, distinguish them from CBDC. On the other hand, CBDC may serve as the fiat currency and even turn into a digital form of cash that is issued by the same central bank.
The CBDC for India
The CBDC, which the Reserve Bank of India classifies as digitally represented legal money, is about to go into a trial program. Known by many as the "digital rupee," it will be regarded as a secure store of value and be exchangeable on par with current currencies.
The RBI's CBDC, also known as the e? or the digital rupee, is a new payment option that is similar to the banknotes that are already in circulation. Its main distinction is that transactions with the digital rupee are anticipated to occur digitally, making it easier to use.
What is the Digital Rupee?
As per the definition on the official website of the Indian Banks Association, “Digital Rupee is the electronic version of our currency which can be used for all your digital transactions. You can load the CBDC wallet and redeem the wallet balance to your linked bank account in seconds. Going ahead, multiple new functionalities and use cases shall continue to be explored. Currently, the pilot is ongoing with 13 banks providing this facility for their customers.”
To put it in simple words, the Indian currency's digital rendition is called the Digital Rupee. It doesn't have a physical existence like coins or cash do. Rather, it is handled and kept digitally. In contemporary financial systems, where electronic transactions are the norm, this kind of currency has grown in importance.
The term "digital currencies" refers to a variety of electronic money instruments that are influencing how payments and financial transactions are made in the future. Stablecoins, CBDCs, and cryptocurrencies are three different strategies for offering virtual substitutes for conventional hard currency; each has unique traits and effects on the financial system.
How to buy Digital Currency?
Eight banks have been chosen by the Central Bank of India, or RBI, to participate in the phased-in e-rupee trial program. In the four cities indicated above, the first phase will be composed of the State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank. Union Bank of India, HDFC Bank, Bank of Baroda, and Kotak Mahindra Bank are the four more banks that will shortly join the pilot program for its second phase.
The digital rupee app, which these eight participating banks have released, aims to improve transaction accessibility. The following is the procedure to purchase digital rupees:
You must go to the official website or app of the participating bank. Users in 4 cities can currently only obtain digital rupees from the 4 banks listed above.
To use the e-rupee wallet, you must next register.
When you are chosen to join the digital rupee pilot program's Closed User Group (CUG), banks will send you an email and an SMS to let you know.
You must add funds to your e?-R wallet after completing the registration process.
Though it is a digital wallet on your phone, the e?-R wallet is comparable to a real wallet.
The bank-linked account or several UPI apps can be used to load funds into the e?-R wallet.
You can begin making e-rupee transactions as soon as you load money into the wallet.
How Digital Rupee Works?
The banks chosen for the Digital Rupee Pilot Program are known as Token Service Providers (TSPs), and the RBI will issue tokens to these financial organizations. Following that, the tokens will be given to clients and interested parties by the TSP. You can use digital Rupee tokens in place of currency and they will function in the same way as coins or bank notes. The CBDC-R app, your bank's digital wallet, allows you to save virtual Rupees. Your cash wallet and the digital wallet operate in the same way, except the transactions will be completely paperless.
Difference Between Digital Rupee & Cryptocurrency
A CBDC is "legal tender issued by a central bank in a digital form," according to the RBI. It is equivalent to fiat money and can be exchanged for it one for one. Its form alone is unusual.
However, a CBDC and cryptocurrency are not the same thing.
A CBDC is not a commodity or a claim on any digital assets or commodities, in contrast to cryptocurrencies. Blockchain technology lacks an issuer. According to the RBI statement, they are not money (definitely not currency) as the word is often misunderstood.
The CBDC is the paper money that central banks like the RBI issue in digital form, and it should be exchangeable for cash. The RBI issues the widely recognized "digital rupee," which will serve the same purpose as a currency but not as a decentralized asset as cryptocurrencies. The central banks that issue the digital rupee will be in charge of overseeing and managing the assets.
How is the Digital Rupee Different from UPI?
The Indian rupee has the same value as real money and is available digitally as the "Digital Rupee." Conversely, the UPI payment system makes it possible to transfer money instantly across bank accounts.
The RBI, the central government, is in charge of creating and overseeing digital rupees. On the other hand, UPI, a decentralized platform used by multiple banks and payment service providers, was developed by NPCI.
The goal of the Digital Rupee initiative is to digitalize every facet of the monetary system, including benefits to the government and global trade. UPI focuses mostly on peer-to-peer and merchant payments within the country.
Conclusion
With its ability to streamline financial processes, lower transaction costs, and promote financial inclusion, the Digital Rupee has the potential to completely transform the financial environment in India. The Digital Rupee is poised to have a significant impact on how financial services and transactions are shaped in India going forward as the digital currency ecosystem develops.
