As every country is advancing towards sustainable goals, cashless economy through E -Rupee is a booster to the digital revolution taking place across the global economy.
Central Bank Digital currency (CBDC) or E-rupee is the digital avatar of physical currency, which is now widely adopted as a means of transaction in many countries across the world. As every country is advancing towards sustainable goals, cashless economy through E -Rupee is a booster to the digital revolution taking place across the global economy. E- Rupee is a legal tender and is bound by all the rules and regulations applicable to physical currency notes. Also, they are available in same denominations as the physical currency notes ‘which serves both as a medium of exchange and a store of value’. Hence the categorization of the e-rupee is done on the basis of the four characteristics of money – which is issuer, form (physical or digital), accessibility and technology. The CBDC need not be confused with the existing digital money popular among the public as ‘CBDC would be a liability of the Reserve Bank, and not of a commercial bank’.
Token based and account based are two operational forms of CBDC. A token-based CBDC is analogous to banknotes in the sense that the custodian of the tokens at a given point in time would own them. On the other hand, an account-based system, as the name indicates require ‘maintenance of record of balances and transactions of all holders of the CBDC and indicate the ownership of the monetary balances’. Regarding the validation procedure, for token-based CBDC, the person receiving a token is liable to verify the credibility of his ownership of the token, on the other hand an intermediary verifies the identity of an account holder in an account-based CBDC.
Digital currency- wholesale segment (e rupee-W) and retail segment (e rupee – R) are two types of CBDC projects piloted by RBI in the year 2022.
E Rupee – W
The wholesale segment was launched in November 1, 2022 by RBI, targeting the settlement of secondary market transactions in Government Securities. The foreseen advantages are more efficacy in the inter-bank money market, reduction of transaction costs and forestall requirement for collaterals to avoid settlement risks. Cross border payments and other wholesale transactions are the next steppingstones for future pilots of e rupee- W. Account based CBDC is the probable operational form for e rupee- W owing to its features.
E Rupee-R
The retail digital rupee was piloted by RBI through selected bank at specific locations on 1st December 2022, with a closed group of participating retailers and merchants. Mumbai, Delhi, Bengaluru and Ahmedabad were chosen for the pilot of e rupee – R. Considering the operational structure of this CBDC resembling physical cash, token-based approach is preferred for e rupee- R.
The beneficiaries can access e rupee – R through the digital wallet offered by the mediatory banks and can be stored on Android devices. It facilitates both person to person (P2P) and person to merchant (P2M) transactions. QR codes displayed at merchant locations can be a channel for P2M transactions. The money once converted to e rupee from bank will not further generate interest in bank. The store of value is realised through the facility to convert e rupee to other forms of money, like deposits with Banks.
Trust, safety, liquidity, settlement finality and integrity are the significant features of CBDC that adds to its capacity as a sovereign currency. The scope of CBDC in India among others include decrease in operational costs involved in physical cash transactions, ‘fostering financial inclusion, bringing resilience, efficiency, and innovation in payments system, adding efficiency to the settlement system, boosting innovation in cross-border payments space and providing public with uses that any private virtual currencies can provide, without the associated risks’. The possibility of offline feature in CBDC would be an added advantage, especially in remote areas of the country where electrical power or mobile network feeble or not available.
Reference : https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=1218#CP2
