Since the start of the year, India’s CBDC (Central Bank Digital Currency), popularly known as e-Rupee, has made headlines in financial news. Announced last year by Nirmala Sitharaman, India’s Finance Minister, e-Rupee is part of the country’s government initiatives to enhance financial inclusion.
The CBDC is currently in pilot test but on an invite-only basis. This means you need to be invited by your bank to participate in the pilot program. Please keep reading this guide to find out more about the e-Rupee.
What are CBDCs?
Simply put, a CBDC is a digital version of a particular nation’s physical currency. Many mistake CBDCs for crypto assets, but the two operate differently. While they’re both digital, CBDCs are issued by central banks. By contrast, cryptocurrencies are controlled by private entities.
What’s the e-Rupee?
The e-Rupee is a digital version of the physical Rupee. The Reserve Bank of India issues the CBDC. Although the digital Rupee runs in a blockchain, it cannot be considered a cryptocurrency since it is not decentralized.
As mentioned before, the e-Rupee is in the pilot test as of July 2023. The main goal of the pilot program is to check the safety and speed of carrying out transactions using the CBDC. Initially, only Indians living in Mumbai, Bhubaneswar, New Delhi, and Bengaluru had access to the e-Rupee, upon invitation from banks operating in these regions.
By March, the Reserve Bank of India had expanded the program to more locations, such as Ahmedabad, Gangtok, Kochi, Lucknow, Patna, Shimla, Chandigarh, Hyderabad, and Guwahati.
The banks involved in the e-Rupee pilot program include Canara Bank, Punjab National Bank, Federal Bank, Axis Bank, HDFC Bank, Union Bank of India, bank of Baroda, Kotak Mahindra Bank, and IndusInd Bank.
How Do You Join the e-Rupee Pilot Program?
Unfortunately, there is nothing you can do you access the e-Rupee other than wait for an invite from your bank. If you are lucky enough to get the invitation, a link will be sent via email to download the e-Rupee app.
What are the Denominations for the e-Rupee?
The denominations featured in the e-Rupee are similar to those in the physical Rupee. As of this writing, the digital Rupee tokens available include e₹2,000, e₹200, e₹500, e₹100, e₹50, e₹20, e₹10, e₹5, e₹2, e₹1, and e₹0.50.
So how can you send an amount that’s not part of the above denominations, for example, e₹20.41? Well, the e-Rupee app provides a solution for this. It simply rounds off the amount. So in our case, you will send e₹20.50.
Pros and Cons of e-Rupee
Pros
Streamlines government payments: Digital Rupee will play a significant role in helping the Indian government to make payouts like tax refunds, subsidies, and scholarships efficiently.
No manufacturing: The e-Rupee does not require the Reserve Bank of India to set up a factory for manufacturing tokens, thus saving production costs.
24-hour availability: The digital Rupee transactions can be executed anytime, unlike in traditional banks, where their systems only operate during working hours.
Quick Transactions: The e-Rupee app facilitates transactions almost instantly. By contrast, it may take a few days for your transactions to be confirmed when using traditional banks.
Cheap international transactions: Along with speed, making international transactions using the e-Rupee will be more affordable than transacting via banks.
Cons
Government control: Since the e-Rupee is issued by the government through the Reserve Bank of India, it’s likely that Indians will lose their privacy rights because the central bank will be able to monitor their spending.
Security concerns: Like cryptocurrencies, the e-rupee can also be attacked by cybercriminals. Therefore, there is a risk of its holders losing their funds.
Risk on India’s banking system: When the e-Rupee becomes accessible to all Indians, it may have a negative impact on the country’s banking system. For example, if people choose to store their funds primarily in e-Rupee, it could cause a drop in bank deposits, making credit creation difficult.
Conclusion
The e-Rupee promises fast and cheaper transactions along with financial inclusion. However, as we have seen, it also poses risks to the Indian banking system. Therefore, the Reserve Bank of India needs to address these risks before making the CBDC available to the general public.
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