Retail e-Rupee Launch: What Is RBI’s Digital Currency — Explained

The Reserve Bank of India (RBI) is all set to launch its Central Bank Digital Currency (CBDC) for retail transactions on Thursday. CBDC-R or retail e-rupee launch comes after almost a month since the wholesale e-rupee launch. Largely similar to the latter’s launch, RBI’s retail e-rupee will be initially introduced in four major cities, including Mumbai and Delhi.

Since it is the pilot launch of CBDC-R, as per official updates, RBI’s digital currency pilot would cover select locations in a closed user group (CUG), comprising participating customers and merchants. For the initial phase, some banks like the State Bank of India (SBI), HDFC Bank, ICICI Bank, IDFC Bank and others are expected to be a part of this. 

According to RBI, e-rupee is simply a digital form of currency or Indian rupee that is already in use. In its concept note, released on October 7, the central bank elaborated on its motivations behind introducing the CBDC, its design, various technological considerations as well as the policy aspects of this big change. 

However, the introduction of CBDC by RBI has raised several questions as initially, there was an understanding that the central bank wanted to ban the practice of crypto currencies. Hence, it becomes all the more imperative to understand what CBDC or e-rupee is how it is different from crypto and UPI transactions and other things. 

What is Central Bank Digital Currency (CBDC)? – Explained

CBDC is a digital currency that is issued or backed by the central bank of a sovereign nation. If one goes by the definition of CBDC, it must be understood that it is freely convertible against the physical currency already in circulation, issued by the same central bank. But it is not the same as physical currency. One of the major differences between CBDCs and physical currency is that the former will have an infinite life as it cannot be damaged or lost in any physical form. 

Coming to the types of CBDCs, as per RBI’s e-rupee pilot program, the digital currency has two forms: retail (CBDC-R) and wholesale (CBDC-W). As per last updates, CBDC-W has already been launched last month and is used for interbank and other wholesale transactions, whereas, the CBDC-R will be launched on December 1 and be used for retail transactions. 

RBI’s e-rupee/CBDC vs Crypto Currency And UPI

As mentioned before, initially, there was an understanding that the central bank considered crypto currency to be a dangerous thing and one that certainly should not be promoted. Since the world over crypto is gauging traction, the Centre also went ahead and imposed heavy taxes on crypto currencies. However, with the launch of CBDC, at least one thing got clear that there is something that is different and maybe CBDC is not the same as crypto. Let’s understand the difference.

The difference between CBDCs and crypto currency is simple – the former is backed by a central bank or a sovereign nation, while the latter is considered like private money that is not backed by any sovereign entity. However, there is not much difference in terms of payments as in both CBDC and crypto, payment settlement happens instantaneously. 

As far as UPI transactions are concerned, the settlement of transactions happens on the backend between two banks. However, with both CBDC and crypto, the settlements happen instantaneously as money is programmable. 

While RBI is all set to roll out CBDC in full scale, especially the retail e-rupee, many are still sceptic about the move due to the associated risks. 

CBDCs – The Challenges

Since CBDC is a form of digital currency, one of the most common risks associated with this form of e-rupee is data privacy and financial stability. Experts believe that many countries have not launched CBDC till now, even after researching on it, as privacy and cyber security are big concerns. 

It is also understood that CBDCs have the ability to accumulate sensitive user and payment data as it is still a part of the web. If the data ever goes in wrong hands, it can easily be used to spy on private transactions, secure sensitive details and also indulge in cyber crimes. Hence, it is believed that implementation of security protocols is a must to mitigate risks while rolling out CBDCs.