Digital Rupee: Complete Guide to India’s CBDC

What Is the Indian e-Rupee?

The digital rupee, or e-rupee (e₹), is a Central Bank Digital Currency (CBDC) issued by the Reserve Bank of India (RBI). It serves as the digital counterpart to India’s traditional physical rupee.

For those new to this concept, Central Bank Digital Currencies (CBDCs) are essentially digital twins of a country’s fiat currency. They're created and issued by central banks and follow the same regulations as their physical equivalents.

It’s important to distinguish that CBDCs are not cryptocurrencies. While both are digital, cryptocurrencies are generally decentralized and governed by communities. In contrast, CBDCs are centralized, issued, and managed by the central bank, providing them with a distinct level of legitimacy and stability.

CBDCs are available in two types: wholesale and retail. Wholesale CBDCs are used by banks and financial institutions for interbank settlements. Retail CBDCs target everyday use, functioning like cash, and enable ordinary citizens to make routine transactions.

In summary, the digital rupee is issued as a tokenized digital representation of the Indian rupee. Like its physical version, the e-rupee is legal tender, accepted for payments, and serves as a secure store of value.

Key Highlights of the Digital Rupee:

• The digital rupee, or e-rupee, is a sovereign digital currency issued by the RBI

• Although it uses blockchain technology, the digital rupee is not a cryptocurrency. Unlike decentralized cryptos such as bitcoin and ethereum, the digital rupee is fully centralized

• It is legal tender and can be used just like cash, for example, to buy groceries

• The digital rupee is interchangeable with physical currency. Once available to the public across India, cash can be exchanged for digital rupees of equivalent value at any bank

• The digital rupee is recorded as a liability on the RBI’s balance sheet, reflecting the RBI’s responsibility to uphold and guarantee its value

• The RBI aims for the digital rupee to be a fully fungible asset accessible to everyone, with or without a bank account

Digital Rupee: Timeline, Stakeholders, and Scope

The wholesale digital rupee (e₹-W) launched in November 2022, initially targeting settlement of secondary market government securities. This initiative aimed to lower transaction costs and minimize settlement risk, thereby boosting the efficiency of India’s interbank financial system.

The retail version (e₹-R) followed in December 2022. At first, only a select group of customers and merchants in cities like New Delhi, Mumbai, and Bengaluru joined the pilot. The project has since expanded to most major Indian cities, indicating steady and progressive adoption.

According to the Reserve Bank of India, by the end of June 2024 the retail CBDC pilot had 5 million users and over 420,000 participating merchants. Digital rupee user numbers grew 8.7% over the previous quarter, and merchant participation increased by 5%, signaling sustained momentum and growing interest in this monetary innovation.

Digital Rupee Denominations

The digital rupee offers the same denominations as physical currency. You have coins of 50 paise (₹0.50) and ₹1, and tokens from ₹2 up to ₹500.

Digital tokens are available in e₹0.50, e₹1, e₹2, e₹5, e₹10, e₹20, e₹50, e₹100, e₹200, and e₹500 denominations. There was also an e₹2,000 denomination, but the RBI removed it from circulation (along with the ₹2,000 paper notes) in 2023.

But what if you need to send or receive an amount that doesn’t match these denominations, like e₹10.43 or e₹10.11?

The digital rupee system rounds amounts to the nearest available denomination—much like Indian merchants sometimes offer candy when they lack small change. Instead of providing a physical item, the system simply rounds the amount up or down.

Here’s how it works: the system rounds the sent or received amount to the closest denomination. For example, if you transact e₹10.43, it rounds to e₹10.50. For e₹10.11, it rounds to e₹10. This keeps the denomination system practical and straightforward.

What Does the Digital Rupee Look Like?

The e-rupee is purely digital and has no physical form. To help users adapt, the RBI designed graphics for each digital rupee denomination that closely resemble their physical counterparts.

Just like physical notes display the RBI’s name, logo, and governor’s signature, the digital rupee features the same visual elements. This helps users recognize and trust the new currency while maintaining a connection to familiar money.

Each token receives a unique serial number—a digital fingerprint—that allows tracking on the blockchain. This enhances security and traceability, helping prevent counterfeiting and ensuring the authenticity of every transaction.

Digital Rupee: Key Features and Characteristics

Here’s a summary of the digital rupee’s defining features:

Digital representation: The digital rupee is a tokenized, digital version of the Indian rupee. Each token corresponds to a specific denomination, ensuring a direct match with traditional currency.

Legal tender: Like physical rupees, the digital rupee is recognized by the government as valid payment, enjoying the same legal status as cash.

Instant transactions: A major benefit is transaction speed—payments and transfers are processed instantly, making financial operations more efficient and eliminating delays of traditional methods.

Accessibility: The digital rupee is designed for universal accessibility, regardless of location. This could advance financial inclusion, especially in remote or underserved areas, enabling more people to use digital financial services.

Interoperability: The digital rupee works seamlessly with other payment systems, allowing integration with current digital payment apps for smooth participation in the existing financial ecosystem.

Privacy: While enabling traceability, the digital rupee is engineered to respect user privacy. Its architecture allows authorities to trace and prevent illegal activity but protects ordinary user privacy, balancing security and confidentiality.

What Is the Difference Between UPI and the e-Rupee?

“With the CBDC, you’ll withdraw digital currency and store it in your mobile wallet. When you make a payment at a store or to another person, it moves directly from your wallet to theirs. There’s no routing or bank intermediation.”

– T Rabi Sankar, Deputy Governor, RBI

Is Privacy a Concern With the Digital Rupee?

Quite the opposite. Because digital wallet transactions are peer-to-peer, the digital rupee can offer greater privacy than most UPI apps. Digital rupee transactions occur directly between users.

For instance, if you buy a bag of chips with a new 20-rupee bill at a store, there’s typically no centralized record of that transaction. The e-rupee works similarly for relatively low-value transactions. The RBI has officially stated such transactions will remain anonymous.

In contrast, UPI apps like Google Pay or Amazon Pay centrally record all transactions on their servers, regardless of amount. As a result, UPI offers much less anonymity.

While the digital rupee provides some anonymity for small-value transactions, it operates on centralized infrastructure. The RBI can trace transactions on the blockchain—tracking individual tokens as they move through the system.

However, the RBI assures that tracing will primarily target high-value transactions to ensure legal compliance and security, not to monitor every minor transaction. This approach balances privacy for ordinary citizens with the ability to detect and prevent illicit financial activity.

In summary, the digital rupee grants a degree of privacy yet maintains oversight and transparency where needed.

Digital Rupee: Pros and Cons

A Calibrated, Gradual Rollout Is Essential

Building on the success of UPI, the digital rupee represents a significant milestone in India’s push toward a fully digitized economy. It promises safer, more cost-effective, and efficient transactions, while also addressing potential challenges to the banking sector and monetary policy.

That said, CBDCs—including the digital rupee—are still in early adoption. Thorough research is needed to fully evaluate their impact on India’s financial system. In this context, a measured and gradual rollout that doesn’t stifle innovation is the most prudent course. This approach allows for real-world assessment, policy adjustment, and ensures the benefits of the digital rupee are maximized while minimizing risks to financial stability.

FAQ

What is the Indian digital rupee (e-Rupee), and how is it different from the traditional rupee?

The digital rupee (e-Rupee) is a digital currency issued by India’s central bank, managed directly by the monetary authority instead of commercial banks. Unlike the traditional rupee, it acts more like digital cash.

What is the launch timeline for India’s digital rupee CBDC project, and what is the current progress?

The Indian digital rupee is in an advanced pilot phase with ongoing wholesale and retail testing. Indian banks are actively involved in trials. A full-scale launch is planned for the coming years, though no specific date is confirmed yet.

How do you use the Digital Rupee? How can regular consumers access and exchange the Digital Rupee?

Consumers can download the e₹ wallet app from Union Bank of India to make transactions. Access is currently limited to select customers in Mumbai and Bangalore. Contact your bank for an invitation and access to the service.

How does the Indian digital rupee differ from third-party payment apps (such as UPI and PayTM)?

The Indian digital rupee is a CBDC issued by the Reserve Bank of India, while UPI and PayTM are private payment platforms. The digital rupee offers direct monetary sovereignty and enhanced security, unlike conventional digital wallets.

Does the Digital Rupee have potential impact on India’s economy and financial system?

The Digital Rupee can boost financial inclusion and streamline transactions. However, it introduces risks such as banking disintermediation and cybersecurity threats. Gradual implementation is vital to address these technological challenges.

Is it safe to use the Indian digital rupee? How does the central bank protect user data and funds?

The Indian digital rupee is secure, thanks to strict encryption standards imposed by the Reserve Bank of India (RBI). The RBI safeguards user data and funds with advanced security technologies and robust regulatory oversight against fraud.

Will the digital rupee affect India’s monetary policy and banking system?

The digital rupee will strengthen financial inclusion, streamline payments, and reduce reliance on cash. It gives the Reserve Bank of India greater control over monetary policy and modernizes India’s payment infrastructure.

Will the Indian digital rupee completely replace paper money and coins?

The Indian digital rupee is being phased in gradually and will not fully replace cash and coins. The government plans for gradual adoption over several years, with physical currency continuing to circulate alongside digital money.