RBI Digital Currency: erupee is set to become as popular as UPI

The RBI’s Central Bank Digital Currency (CBDC) erupee will revolutionize the Indian digital payment landscape like never before.

Preface

This article discusses RBI’s eRupee and its impact on India’s move towards a cashless economy by 2030.

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World’s first cryptocurrency – Bitcoin

In 2009, Satoshi Nakamoto introduced the world to the blockchain-based cryptocurrency known as Bitcoin. This innovative technology quickly caught the attention of traders worldwide, who were eager to learn how to use it. In no time, they began utilizing it in their businesses, albeit unofficially. The demand for Bitcoin skyrocketed, causing its value to soar to unprecedented heights. This digital currency revolutionized the way people conducted transactions and changed the world as we knew it.

Global governments have noticed Bitcoin and its underlying technology, Blockchain. After a decade of study, some countries have introduced digital currencies and initiated pilot projects with merchants and clients.

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Governments are exploring launching digital currencies

100+ countries, accounting for 95%+ of global GDP, are exploring digital currencies; some have deployed e-currencies, and others running pilots.

Cryptocurrencies are popular among Millennials and Gen-Z, so central banks are developing user-friendly payment systems. Many banks now add ‘e-‘ to their currency names.

India also jumped into the fray

India has made a significant impact in 2022 with the popularity of its highly successful UPI. Following the global recognition of its success, India is promoting its UPI, which is a part of INDIA STACK, as the next major innovation in digital public infrastructure (DPI) that countries should adopt for the betterment of society.

In August 2023, UPI recorded over 10 billion transactions worth nearly ₹15.8 trillion, making it a huge success for India. Additionally, India is promoting DPI, which includes RuPay, a domestic debit and credit card that dominates the market with over 860 million transactions worth over ₹1.6 trillion. Many countries have shown interest in adopting these payment systems.

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Why is RBI launching erupee?

Several reasons propel the RBI’s initiative:

• Digital Economy: India’s digital economy demands safe, robust, and efficient payment systems. The e-Rupee aims to bridge the digital divide, complementing the existing UPI mechanisms.
• Reduced transaction costs: CBDCs could reduce transaction costs by streamlining processes and eliminating physical currency, resulting in faster and more efficient transactions.
• Tackling Counterfeit Currency: Digital currencies have a more secure infrastructure, making it tougher to produce counterfeits, thus ensuring the integrity of the money supply.
• Monitoring financial transactions: A centralized digital currency enhances government oversight of financial transactions to combat illegal activities like money laundering.

Implications for the Indian Financial Ecosystem

Implications of e-Rupee on the Indian Financial Ecosystem are as follows:

• Financial Inclusion: The erupee could pave the way for better financial inclusion by making it easier for the rural population and those without bank accounts to access financial services.

• Enhanced Security: Leveraging blockchain technology or other digital ledgers for the erupee can ensure higher security levels, preventing hacks and unauthorized transactions.

• Potential Impact on Banks: With people having direct access to central bank money in digital form, there might be implications for traditional banks. However, it is widely believed that the role of banks will evolve rather than diminish, as they will continue to provide essential financial services.

• Efficiency and speed: The CBDC transactions are instantaneous like UPI that enable real-time fund transfers. A CBDC can be used in sectors like retail, and wholesale. CBDC can be used for domestic or cross-border (international) payments at high efficiency. For cross-border payment settlements, a CBDC can even overcome hurdles like differential laws, processes, and due diligence requirements, apart from time-zone variations. It is the result of institutional and regulatory cohesion across sovereign jurisdictions

Conclusion

The erupee is a major step forward for India’s financial system, aligning it with global trends and addressing domestic needs. With careful planning and innovation, it has the potential to redefine digital transactions in India. Successful implementation will require collaboration between policymakers, the tech community, and the public.

The erupee has the potential to revolutionize India’s economy. Once it is as popular as UPI, the rupee digitization initiative will be a success.

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