Blog: Decrypting Digital Rupee (e₹) | The Financial Express

Blog: Decrypting Digital Rupee (e₹)

The currency refers to the electronic form of money which has the same characteristics as the fiat currency issued by RBI

Blog: Decrypting Digital Rupee (e₹)
Analysts suggest that e₹ withdrawals would be like cash withdrawals from bank accounts

On December 1, 2022, Reserve Bank of India (RBI) released the Digital Rupee (e₹) in a stage wise basis for retail segment in cities such as Bengaluru, Bhubaneshwar, Delhi and Mumbai. It is believed that questions have been raised around how an e₹ functions and what makes it different from cryptocurrencies. Insights from a blog post have provided answers to those queries, which are mentioned below:

  1. What is a Digital Rupee (e₹)?

Digital Rupee (e₹) stands for Central Bank Digital Currency (CBDC). The currency refers to the electronic form of money which has the same characteristics as the fiat currency issued by RBI.

  1. What is a Centrally Backed Digital Currency?

CBDC means the digital form of currency issued by the central bank (RBI). Similarly, like traditional currency notes, CBDC is supported by RBI’s authority.

  1. How will e₹ work?

The aim behind unveiling CBDC would be to provide an alternative for traditional currency notes in wallets. Further, it could be utilised to incur payments through Qucik Response (QR) codes or through Digital Rupee wallets kept by payer and payee.

  1. How is it different from UPI transactions?

In Unified Payment Interface (UPI) transactions, participation includes entries from two bank account statements which are regulated by commercial banks. The mechanism behind e₹ is to succeed cash in wallets. Being a Central Currency, it wouldn’t enter commercial bank accounts  and RBI would be responsible for keeping track of records. 

  1. Who would be responsible for providing e₹ initially?

Users can purchase digital currencies from certain banks even if they haven’t created an account with them. Analysts suggest that e₹ withdrawals would be like cash withdrawals from bank accounts, which would be transactional just like traditional cash.

  1. How is it different from cryptocurrencies?

Cryptocurrencies are created through backing of blockchain technology, which carries a public record for everybody. Although, e₹ is not expected to have transactional records available, despite being based on blockchain.

  1. Can one invest in e₹? 

e₹ is not a financial instrument for one to secure interest through a deposit. It’s the form of electronic cash which can be used just for transactional purposes.

  1. What is the motive of government behind e₹? 
  1. Printing and maintenance cost of cash 
  2. For development of a cashless economy
  3. Increase in transactional speeds
  4. Cost reduction of UPI transactions
  5. Cryptocurrency’s substitution for different reasons

      9.  What are the advantages of public at large?

  1. Secured in terms of traditional cash
  2. Reduction in uncertanities with regard to soiled currency notes
  3. Convenience of transactions at no charges
  4. Easier to maintain records of receipts and payments

     10. What are the challenges?

  1. Reduction in privacy
  2. Faulty internet connection especially in rural areas
  3. Cyber security-based threats
  4. Authorities can make use of centralised data for other purposes

(With insights from blog)

Also Read: Wire Network unveils cryptocurrency wallet MegaMask at CoinAgenda

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First published on: 08-12-2022 at 08:00 IST