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Hi guys,

Today let us discuss the hot topic of the town: The digital rupee!!

What is Indian Digital Currency?

E- Rupee (e₹) or Central Bank Digital Currency (CBDC) is the virtual currency in India issued and formulated by The Reserve Bank (RBI) in two phases, a) wholesale, i.e., for inter-bank settlements and cross-border transactions, and b)retail, to the consumers and merchants. This is just an electronic version of cash and helps in faster settlements and lowers the printing, transportation, and transaction costs. The pilot project has been launched on November 1, 2022, involving 9 banks in total (namely, SBI, IDFC First Bank, HDFC, ICICI, Union bank, Bank of Baroda, Kotak Mahindra Bank, Yes Bank, and HSBC) with the wholesale version, and will be expanded to retail version also within a month as per reports.

Why does India need a digital rupee now?

As per RBI Reports, India has seen tremendous growth in digital transactions post covid. The trend analysis is as shown below (Source: RBI Annual Report-Consolidated).

As per the above studies, a cash-dependent economy like India, where most of the population preferred liquid cash as the mode of payment, has now become a major cashless economy. As per Statista, currently, India is the leader in real-time transactions having a growth of 64% from the previous year and touching around 71 billion digital transactions in the year 2022, the highest in the world.

Thus, E-Rupee will be a game changer for the Indian economy and an initial footstep by RBI as this will pave the way to track and regulate all modes of digital transactions shortly. Since, Cryptocurrencies are still an unregulated parallel economy making it easier for money laundering, illegal forex holdings, and terrorist funding. So to curb this, it is essential to track the deals in crypto markets.

Are digital currency and cryptocurrency the same?

No. Unlike cryptocurrencies, E- Rupee is a digital version of cash, which can be stored in an E-Wallet and used in various denominations, which works simply like a personal ATM in digital form. E- Rupee can neither be mined nor purchased from exchanges. Market movements do not add their value over time, as E-Rupee is a legal tender issued and regulated by RBI. But technically, the digital rupee uses the same blockchain technology to secure digital transactions. The cryptocurrencies, which have been brought under tax purview recently, are covered under the head capital gains as cryptocurrencies are capital assets and their sale shall be taxed at 30%, E- Rupee works the same as liquid cash is and not like crypto.

Challenges in issuing E-Rupee

Liquidity and solvency issues in the cash management system should be taken care of with the right balance between digital and paper forms of the rupee. Cyber security and privacy issues may arise, which have to be addressed properly.

India's initiative on digitizing the currency and revamping the economic environment is a good move that should be appreciated as domestic and cross-

border transactions are expected to get a boost. Let us wait and watch the new rupee avatar!

Thanks for reading!! Have a nice day.