Importance of E-Rupee in India

What is E-Rupee?

The e-rupee is India’s central bank digital currency (CBDC), the digital form of the Indian rupee. Launched on November 1, 2022, by the Reserve Bank of India (RBI), it is the same as regular banknotes but exists in digital format. 

E-rupee can be used for online transactions and stored in digital wallets, just like cryptocurrencies. However, unlike cryptocurrencies, it is backed by the RBI and the Indian government. The introduction of the e-rupee marks a big step towards digitising the Indian currency system.

Why Was E-Rupee Introduced?

There were several reasons why RBI decided to introduce e-rupee in India. Firstly, with rising smartphone and internet penetration in India, digital payment platforms have seen exponential growth over the past few years. However, all these payments are happening through payment gateways and intermediaries. 

E-rupee will allow direct peer-to-peer digital transactions without the involvement of any third party. Secondly, the e-rupee aims to give a boost to the digital economy by making transactions more convenient, secure and cheaper. It can facilitate micro-payments in areas like transportation, retail, etc., where digital payments see frequent small-ticket transactions.

Types of E-Rupee in India

The RBI has launched two types of e-rupee models in India.

1) Retail E-Rupee: 

This model allows peer-to-peer transactions between consumers and merchants. Retail e-rupee can be used by individuals to make payments digitally for goods and services. 

2) Wholesale E-Rupee: 

This model is meant for transactions between banks, financial institutions and large corporate customers. Using wholesale e-rupee, banks will be able to settle large inter-bank dues and obligations digitally on a real-time basis.

Importance of E-Rupee in India:

1. Boosts Financial Inclusion

India has a large unbanked population, especially in rural areas. People in rural areas who do not have access to formal banking channels will be able to make digital payments and receive as well as send money digitally using e-rupee. It will facilitate last-mile access to financial services and promote digital transactions even in villages and towns across India.

2. Reduces Dependency on Physical Cash

A large part of transactions is still done using cash, which can be eliminated by shifting to digital payments. An e-rupee system will allow people to make direct payments to each other using digital money. The e-rupee can reduce dependency and also cut costs for both the government and businesses, while also promoting a cash-lite economy.

3. Faster Transaction Speed

The e-rupee in India can be processed within seconds or minutes, unlike cash transactions, which face delays in physically exchanging money. This will significantly speed up payments for online purchases, money transfers between individuals and businesses, and other digital money transfers. 

4. Promotes Transparency

The e-rupee will promote transparency in monetary transactions in India. As all the transactions using e-Rupee will be recorded digitally in a centralised database, it will be easier for regulators to track the flow of money. This will help curb issues like tax evasion, money laundering, terror financing, etc., as the complete transaction trail will be available in a digital format.

5. Improves Payment Security

Digital currencies use advanced encryption technology and are not physical like cash, which can be easily stolen. Transactions done via e-rupee can be instantaneous, and the records are stored digitally in a secure blockchain network. This makes tracing and reversing fraudulent transactions more efficient and improves payment security for customers.

6. Encourages a Digital Economy

A central bank digital currency will help boost digital commerce as more people will be able to make payments online through the e-rupee. It will further the vision of digital India by transforming the way business is conducted in sectors like retail, utilities and more. This will put India on the road to becoming a digitally empowered society and knowledge economy.

7. Reduces Counterfeit Currency

Counterfeit currency is a major issue with physical cash. The e-rupee eliminates this problem as digital currency cannot be faked.  Only authorised entities will be able to generate, issue and transact in e-Rupee. This will significantly reduce financial fraud and increase trust in monetary transactions.

8. Supports International Transactions

The e-rupee in India could potentially simplify cross-border payments by eliminating the need for intermediaries, reducing transaction fees, and speeding up international transfers, making it easier for businesses and individuals to engage in global trade.

9. Encourages Financial Literacy

The introduction of the e-rupee can drive the need for individuals to better understand digital financial systems. This push towards digital currency could improve financial literacy across different demographics, encouraging more people to manage their finances efficiently.

10. Helps Control Inflation

When people have the option of making digital payments in e-rupee, it will reduce the usage of physical cash in the economy. This will help lower the money supply and thus help control inflation. Adoption of the e-rupee can help the RBI better manage the money supply and keep inflation under control.

E-Rupee Facts:

1. As of March 2024, e-rupee circulation reached ₹234.12 crore, up from ₹16.3 crore a year earlier.
2. RBI is exploring cross-border e-rupee payments, which could reduce international remittance fees by up to 15%.
3. The e-rupee is expected to support financial inclusion for over 300 million unbanked individuals.

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Conclusion:

The launch of the e-rupee in India marks a revolutionary step for the Indian economy and currency system. E-rupee can facilitate faster, cheaper and safer digital transactions on a mass scale. While there will be initial challenges around adoption, e-rupee is expected to provide significant benefits if rolled out smoothly. 

With support from leading technology players, India has the potential to emerge as a pioneer in implementing sovereign digital currencies. The successful adoption of the e-rupee will boost India’s global influence in the financial technology domain.

FAQs:

1. What is E-Rupee?

The e-rupee is India’s central bank digital currency, introduced by the Reserve Bank of India. It is the digital form of the Indian rupee that can be used for online transactions and stored in digital wallets.

2. Why was the E-Rupee introduced in India? 

The e-rupee was introduced to boost financial inclusion, promote digital payments, reduce dependency on cash, encourage a digital economy and support transparency.

3. How does the E-Rupee boost financial inclusion?  

E-rupee allows people in rural areas without bank access to make and receive digital payments, facilitating last-mile access to financial services.

4. How does E-Rupee enable faster transactions?

Digital e-rupee payments can be processed within seconds or minutes compared to physical cash transactions, speeding up various online and offline payments.

5. How can E-Rupee reduce dependency on cash?

By enabling direct digital payments between individuals and businesses, the e-rupee can drive India towards a cash-lite economy over time.