What is digital currency?
A digital currency is a medium of exchange that is generated, stored and transferred electronically. Digital currencies are not typically associated with any country’s government or represented in physical forms like the coins and notes of traditional currencies.
Digital Rupee or e-Rupee in India
The digital rupee, or the e-rupee, is a central bank digital currency(CBDC) issued by the RBI.
The Reserve Bank of India this week launched the digital rupee on a pilot basis. The digital currency will be offered by a select group of public and private banks in a few major cities initially, which can be used for both person-to-person and person-to-merchant transactions.
The digital rupee, or the e-rupee, is a central bank digital currency issued by the RBI. It is similar to the physical cash that you hold in your wallet except that the e-rupee is held electronically in a digital wallet overseen by the RBI. The digital rupee is recognised as legal tender by the RBI, and thus has to be accepted by everyone in the country as a medium of exchange. It is, however, different from deposits that you hold in a bank. Unlike deposits which are paid interest, the digital rupees in your wallet are not paid any interest by the central bank. Deposits held in banks can be converted into digital rupees and vice-versa.
According to the RBI press release dated November 29, 2022, here some important points to know about digital Rupee (e₹-R) pilot:
The pilot would cover select locations in closed user group (CUG) comprising participating customers and merchants.
The e-Rupee would be in the form of a digital token that represents legal tender. It would be issued in the same denominations that paper currency and coins are currently issued. It would be distributed through intermediaries, i.e., banks.
Users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones / devices.
Transactions can be both Person to Person (P2P) and Person to Merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations.
The e₹-R would offer features of physical cash like trust, safety and settlement finality.
As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks.
The pilot will assess the stability of the complete creation, distribution, and retail use of digital rupees in real time. Based on the lessons learned from this pilot, other aspects and uses of the e-R token and architecture will be evaluated in further pilots.