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What is the Digital Rupee?
Digital rupee is the digital form of the Indian fiat currency, i.e. the rupee. It is the legal tender issued by the Reserve Bank of India (RBI) in digital form. Use Digital Rupee in India for making payments and settlements just like physical cash. However, unlike cash, the digital rupee exists in electronic form and is stored in digital wallets.
Why Was the Digital Rupee Introduced?
The digital rupee was introduced to address some of the key challenges with physical cash, like the cost of printing, the logistics of managing cash, and security issues. Some key reasons for introducing the digital rupee in India are:
- To reduce the use of cash in the economy. Too much cash handling is costly for the central bank and commercial banks.
- To promote financial inclusion by bringing users into the formal financial system. Digital payments can reach remote locations easily.
- To give a boost to the growing digital payments industry in India. Digital rupee will facilitate new use cases for payments.
- To make cross-border payments accessible and cheaper. Digital currencies have the potential to disrupt global payment methods.
It is estimated that digital payments in India will grow to $10 trillion by 2026.
Types of Digital Rupee:
There are two types of digital rupee introduced in India:
1) Retail Digital Rupee
This will be used for person to person (P2P) and person to merchant (P2M) transactions. Individuals can transact in the digital rupee through wallets provided by banks and fintech companies.
2) Wholesale Digital Rupee
This is meant for transactions between banks and large financial institutions. It will be used for large value transactions in the inter-bank market and government securities trades.
How to Buy Digital Rupee in India?
The digital rupee can be bought from banks and regulated entities that are authorised to issue the digital rupee. Here are the steps to buy the digital rupee:
- Approach your bank and request to open a digital rupee or e-rupee wallet. You may need to submit KYC documents.
- Banks will send you an SMS and email notification if you are selected to join the Closed User Group (CUG) for the digital rupee pilot.
- Transfer funds from your savings account to the newly opened digital rupee pilot wallet. The funds will be blocked from your savings account and held in digital form in the wallet.
- You can now use the digital rupee for making payments from the wallet by scanning QR codes or entering the virtual addresses of payees.
- Always maintain sufficient balance in the wallet to avoid transaction failures while making payments.
How to Use Digital Rupee in India?
RBI will issue the retail digital rupee in the form of an electronic token. A Closed User Group (CUG), comprising merchants and customers, is involved in the e-rupee pilot across specific locations. Use Digital Rupee in India to experience the future of payments.
The digital rupee will be issued as a digital equivalent of existing money, distributed through banks acting as intermediaries. The digital rupee can be used for many purposes, facilitated by QR codes displayed at malls or retail shops.
Here are some ways to use the digital rupee in India:
1) for P2p Payments:
In P2P payments, Individuals will send and receive digital rupees directly from their bank accounts or digital wallets to other individuals. To make a payment, you need to have the wallet app and the identification details of the recipient, such as their mobile number.
Enter the amount you want to transfer and your PIN for authentication. The money is instantly transferred to the recipient’s account.
2) in-store Payments:
When you visit a retail store, you can scan the merchant’s QR code using the wallet app. This will automatically fetch the payment amount. You then enter your PIN in the app.
The amount will instantly get deducted from your digital rupee balance and get credited to the merchant’s account, completing the transaction. It will be a similar process to making UPI payments, but using the sovereign digital currency issued by the RBI.
3) Inter-bank Transactions:
For transactions between banks, the digital rupee will work similarly to existing electronic fund transfers through RTGS or NEFT systems. Banks will maintain accounts with the Reserve Bank of India (RBI) and will be able to transact digitally in central bank money for large fund transfers between themselves.
The RBI will operate the digital rupee payment system and record transactions in its distributed ledger. Banks will be able to credit and debit digital rupee balances in real-time for large-value inter-bank settlements instead of relying on the physical movement of cash and settlement through clearing houses.
Benefits of the Digital Rupee
There are several advantages of digital rupee compared to physical cash:
1. Safe and Secure:
Digital payments leave digital records, making transactions transparent and traceable. The risk of theft, counterfeiting or loss is reduced.
2. Fast and Instant:
Digital transactions happen instantly 24×7 without waiting for banks to clear. Fund transfers will happen on a real-time basis
3. Low Cost:
Digital payments have lower transaction costs than physical cash. Since it is a central bank digital currency, it reduces banks’ and the RBI’s printing, transporting, and handling cash charges.
4. Better Monetary Policies
The RBI will be able to implement more effective monetary policies, like interest rate changes, using the digital rupee. So monetary actions can be carried out seamlessly across the country.
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Conclusion
Digital rupee aims to make transactions convenient, safe and efficient by introducing fiat currency in digital form. Its widespread adoption can boost digital payments, reduce cash usage and benefit both customers and banks. Overall, the digital rupee can transform how we pay and get paid in the future.
FAQs
1) What is the digital rupee?
Digital rupee is the digital form of the Indian fiat currency, i.e. the rupee. It is the legal tender issued by the Reserve Bank of India (RBI) in digital form.
2) How is the digital rupee different from cryptocurrencies?
Unlike cryptocurrencies like Bitcoin, the digital rupee is a centralised digital currency issued and regulated by the RBI. It is not a private currency and will be exchangeable with physical rupee notes.
3) Who can use the digital rupee?
Any individual with a bank account in India can use the digital rupee once the full rollout happens. Currently, it is available only to select users in specific locations as part of the pilot project.
4) What are the benefits of using the digital rupee?
Key benefits are speed, safety, low cost of transactions, ability to implement monetary policies effectively and boost digital payments.
5) How safe is the digital rupee compared to cash?
Digital rupee transactions leave a digital audit trail, making them more secure and traceable than cash transactions. The risk of theft, loss or counterfeiting is also reduced.
