What is e-rupee? Do Indians really need it as the Digital currency?

There are numerous ways in which the e-rupee can increase the stability of the financial markets and the effectiveness of the monetary system.

The Reserve Bank of India claims that this will boost India’s digital economy by improving the effectiveness of the payment system and reducing money laundering. Government securities will be settled using the digital currency. The RBI has launched its first pilot test programme to evaluate and enhance the operation of the currency as part of its efforts to control inflation. On November 1st, the Reserve Bank of India introduced its first digital rupee for the wholesale market. To take part in this project, nine banks have been chosen. In addition to the State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC, it also comprises these financial institutions.

Central Bank Digital Currency (CBDC)

In essence, it is a digital method of payment that supports contactless transactions. A central bank will issue digital rupees as Central Bank Digital Currency (CBDC). CBDC is the official tender issued in digital form by a central bank, according to RBI. It is interchangeable one-to-one with fiat currency and is the same as fiat currency. Its only distinction is in form. Finance Minister Nirmala Sitharaman, stated in the Union Budget 2022 that the RBI would launch its digital currency shortly.

Why is Central Bank Digital Currency (CBDC) beneficial?

1. It will help cut down on transaction costs. The government will find it simpler to access all transactions taking place within the authorised networks if the currency is digital.

2. It will assist the government in regulating the flow of money into and out of the nation. It is hard to escape the government’s scrutiny through CBDC.

3. It cannot be physically lost, physically destroyed, or burned. When compared to physical notes, it is more robust.

4. The interbank market is anticipated to become more effective with the usage of the digital rupee.

5. Additionally, it will lessen reliance on the currency.

In what possible ways can e-rupee benefit India?

According to recent research, once the pandemic started to recede, demand for cash may have even increased. This seems to suggest that even if a CBDC is implemented, for a considerable amount of time to come, the e-rupee, as a form of legal money, may play a secondary role to cash. Any evaluation of the merits of implementing CBDCs must be undertaken in this context.

There are numerous ways in which the e-rupee can increase the stability of the financial markets and the effectiveness of the monetary system. By first cutting the expense of managing physical currency. The note here emphasises how expensive cash management has remained in India. The introduction of a CBDC will assist reduce this because marginal costs will drop dramatically.

The e-rupee will benefit the financial system in a second way by encouraging it to become more digitalized. The memo makes the point that a large portion of small-value transactions in India are made with cash. If appropriate anonymity is ensured, these transactions may be switched to the e-rupee. As an alternative to crypto assets, the e-rupee will increase the financial stability of the economy. To do this, it will offer the general public a virtual currency that carries no risk—a potential substitute for the risky private virtual currencies.

Through financial inclusion, the e-rupee will improve wellbeing for the less fortunate elements of society. Financial services will be easier to obtain for everyone, including those who are underbanked and unbanked. The offline functionality will give users the option of using the e-rupee without the internet. This will make it possible to access areas without or with poor internet connectivity.