Context:
The Reserve Bank of India (RBI) is collaborating with financial institutions to incorporate fresh functionalities aimed at promoting the adoption of the central bank digital currency (CBDC), often referred to as the e-rupee. This information comes from six individuals who are knowledgeable about the situation.
Relevance:
GS3- Indian Economy
Dimensions of the article:
- About CBDC
- Status of CBDC usage in India
- New features planned by RBI
About CBDC:
Central Bank Digital Currencies (CBDCs) represent a digital counterpart to traditional paper currency. CBDCs are official currencies issued and supported by a central bank.
CBDCs are essentially equivalent to fiat currencies and can be exchanged on a one-to-one basis with traditional fiat currency. Unlike fiat currencies, which are not tied to the value of commodities like gold or silver, CBDCs are digital representations of the national currency.
These digital fiat currencies, also known as CBDCs, can be transacted using blockchain-backed wallets. While the concept of CBDCs drew inspiration from Bitcoin, it differs from decentralized virtual currencies and crypto assets, which are not authorized by the government and lack the status of ‘legal tender.’
Status of CBDCs in India:
Retail CBDC transactions are currently averaging approximately 18,000 per day, falling significantly short of the Reserve Bank of India’s (RBI) target of one million daily transactions by the end of 2023.
As of June 2023, there are 1.3 million customers and 0.3 million merchants actively using CBDC.
New Features Planned by RBI:
Notably, the features of this system include the ability to conduct digital rupee transactions even when a customer is offline and the integration of the e-rupee with India’s popular Unified Payments Interface (UPI).
These sources have chosen to remain anonymous as they are not authorized to communicate with the media. The RBI has not responded to an email seeking comment.
According to two of the mentioned bankers, the RBI has been encouraging banks to make the e-rupee compatible with UPI through the use of a QR code. This interoperability will enable payments to be processed through the already widespread UPI QR codes.
