Digital Rupee: India’s Journey Towards a Central Bank Digital Currency (CBDC) on Web 3.0

5 min readJun 28, 2023

The Reserve Bank of India (RBI) has been exploring the possibility of issuing a Central Bank Digital Currency (CBDC) for some time now. In February 2022, the government announced that it would be launching a CBDC, and on 2nd August of the same year, it was launched. In this blog, we will cover everything that you need to know about the official CBDC of India — the e-RUPI.

What is a Central Bank Digital Currency?

CBDCs, or Central Bank Digital Currencies, are digital forms of national currencies issued and regulated by central banks. They are essentially digital representations of fiat currencies, such as the US dollar, euro, or yen, created and controlled by the respective central banks of those countries.

CBDCs differ from other digital currencies like cryptocurrencies (e.g., Bitcoin or Ethereum) in several key aspects. While cryptocurrencies are typically decentralized and operate on blockchain technology, CBDCs are centralized and are directly issued and overseen by central banks. CBDCs aim to combine the benefits of digital currencies, such as faster and more efficient transactions, with the stability and backing of traditional fiat currencies.

e-RUPI — India’s official CBDC

e-RUPI is a digital payment solution that was launched in India by the National Payments Corporation of India (NPCI) in August 2021. It is a person-specific, purpose-specific digital voucher that can be redeemed at merchant outlets without the need for a card, digital payments app, or Internet banking access.

e-RUPI vouchers are issued by government agencies, private organizations, or other entities to beneficiaries for a specific purpose. For example, the government can issue an e-RUPI voucher to a beneficiary for COVID-19 vaccination, or a company can issue an e-RUPI voucher to its employees for food coupons.

To redeem an e-RUPI voucher, the beneficiary simply scans the QR code or enters the voucher code at the merchant outlet. The voucher amount will then be credited to the merchant’s account.

The introduction of the digital rupee is a significant development for India’s financial system. The digital rupee has the potential to transform the way that people and businesses make payments, and it could also help to promote financial inclusion.

Here are some of the main features of the e-RUPI -

Convenience: e-Rupee can be used to make payments without the need for a bank account or digital payment app. This makes it a convenient option for people who do not have access to traditional financial services.
Security: e-Rupee is a secure payment system that is backed by the RBI. The vouchers are encrypted and can only be redeemed by the intended recipient.
Traceability: e-Rupee transactions are traceable, which makes it a good option for government welfare schemes and other programs where it is important to track the flow of funds.
Scalability: e-Rupee is a scalable payment system that can be easily adapted to meet the needs of a growing digital economy.

Which Banks offer e-RUPI?

At the time of writing, these 22 banks have joined the e-RUPI initiative. Many customers of the below-mentioned banks have received an invitation to try out the e-RUPI.

Axis Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Union Bank of India
Federal Bank
HDFC Bank
ICICI Bank
IndusInd Bank
Indian Bank
Indian Overseas Bank
UCO Bank
Union Bank of India
Karnataka Bank
Karur Vysya Bank
Kotak Bank
Paytm Payment Banks
Punjab National Bank
State Bank of India
UCO Bank

More banks are expected to join the e-RUPI initiative soon.

Advantages of e-RUPI

Increased efficiency in payments and settlement systems: The digital rupee could help to reduce the cost and time of making payments. This could be especially beneficial for businesses that make a lot of small, frequent payments.
Reduced costs for businesses and consumers: The digital rupee could help to reduce the costs of payments for businesses and consumers. This is because the digital rupee could be used to make payments directly between parties without the need for intermediaries.
Enhanced financial inclusion: The digital rupee could help to enhance financial inclusion by making it easier for people to access financial services. This is because the digital rupee could be used to make payments even if people do not have a bank account.
Improved monetary policy transmission: The digital rupee could help to improve monetary policy transmission by making it easier for the RBI to control the money supply. This is because the RBI would be able to directly inject or withdraw digital rupees into the economy.

Challenges faced by e-RUPI

Here are some of the challenges that need to be addressed before the digital rupee can be launched:

Technical challenges: The RBI will need to develop a robust infrastructure for issuing and managing the digital rupee.
Regulatory challenges: The RBI will need to develop a regulatory framework for the digital rupee. This framework will need to address issues such as anti-money laundering and consumer protection.
Public acceptance: The digital rupee will need to be accepted by the public in order to be successful. The RBI will need to undertake a public awareness campaign to educate people about the digital rupee and its benefits.
Centralization — Centralization comes at a big cost — i.e.security. The RBI needs to make sure that the e-RUPI will be a fail-safe digital currency that cannot be manipulated by anyone except the RBI itself. Also, many crypto fans will object to these CBDCs as it does not obey the first and foremost rule of a blockchain — i.e., decentralization.

Conclusion

The digital rupee has the potential to be a significant innovation for India’s financial system. However, there are a number of challenges that need to be addressed before the digital rupee can be considered a safe medium of exchange. The RBI is currently working on addressing these challenges and is expected to evolve in the coming months.