The new buzzword in the market is E Rupee. It refers to as Central Bank Digital Currency (CBDC) of India. E Rupee is the digital version of rupee which is regulated by Reserve Bank of India (RBI) Let us understand what is it and how it works.
What is E Rupee?
It is nothing but physical rupee notes currently in use in a digital form. All virtual or digital currency is created with coding and encryption. E Rupee is also created by the same process. E Rupee uses blockchain distributed ledger technology.
It carries the same denomination as in fiat notes. It will be uniquely identifiable and backed by physical rupee. Therefore liabilities lies with RBI. The symbol of E Rupee is e₹ or eINR.
Reserve Bank of India launched E Rupee in two phases in November 2022 and December 2022. Currently it is available only at select locations through select intermediary i.e. Bank. Customer can choose to receive money from bank either in physical note or digital rupee. Similarly, they would be able to pay to merchants either in cash or in E Rupee.
The participating bank will provide a digital wallet where the credit and debit of E rupee will happen. This wallet will be accessible in both mobile and computer or tablet. The transaction can be between person to person, person to merchant or merchant to merchant. The E rupee will be a legal tender, which means you can use it to buy what you want.
One can revert to cash from E Rupee and vice versa. However, E Rupee will not earn any interest. The holder E Rupee need not have a bank account because it is fungible legal money.
Initially it is being launched in metros and important cities of India with participation of nine banks. Gradually it will be expanded to the entire country. As on February 8, 2023, E Rupee has reached about 50,000 users and 5,000 merchants.
What is the history of digital currency?
The concept of digital currency started in 1983. David Chaum, the pioneer for digital currency founded DigiCash in 1989 to commercialise electronic cash. Subsequently, e-gold was introduced in 1996 as internet money. DigiCash went bankrupt in 1998 and e-gold closed down in 2008. In 2009 bitcoin was launched which marked the beginning of decentralised cryptocurrency era.
What is the difference between E Rupee and cryptocurrency?
Digital currency refers cryptocurrency, virtual currency and Central Bank Digital Currency (CBDC) of a country. E Rupee is the CBDC of India. Digital currency commonly refers to CBDC. Otherwise, it is cryptocurrency or decentralsied digital currency, which is not controlled by the central Bank of the country. Therefore, the major difference between cryptocurrency and digital currency is that cryptocurrency is unregulated, while digital currency or CBDC is regulated by the Central authority of the country. Cryptocurrency transaction is based on blockchain technology which is a decentralised ledger. Whereas digital currency transactions are maintained in centralised ledger by the central authority. Digital currency is not a commodity which cane traded. Cryptocurrency is treated as commodity and it can be traded.
Which countries have digital currency?
Many countries have taken initiative on digital currency since nineties and many have already implemented digital currency in one form or others. Some of them are Russia, China, Japan, Hong Kong, UK, Netherland, Belgium, Antigua and Barbuda, Dominica, Montserrat, Nigeria, The Bahamas, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines.
India is a major country which has announced launch of digital currency from December 1, 2022 for whole sale as well as retail transactions.
What is the experience of other countries?
The level of acceptance of digital currency is currently low in most of the countries. Some countries including India introduced it very recently – Nigeria launched e-naira in 2021, Bahama launched Sand Dollar in 2020. The reason for low adoption is low internet penetration.
Many countries are experimenting with digital currency to make it accessible by all. Ghana introduced e-cedi loaded card in remote area for transaction without bank account, mobile or internet. China tested biomatric based card which allow elderly to purchase and access healthcare without smartphone.
Countries are putting effort to make it popular by different promotions – Jamaica offer cash on adoption, the Bahamas offer reduction in merchant discount rate, Nigeria offer discounted rickshaw ride, China offer discount in public transport ride.
Why digital currency needed?
As technology is evolving, all product and services are moving towards technical platform. Currency also no different. Eventually, it is going to be a virtual currency worldwide. The major advantages of digital currency are,
- It will work against popularity of cryptocurrency, which is decentralised and unregulated.
- Payment system will be available to all type of customers round the clock.
- Payments will be more direct without many intermediaries.
- The transaction cost will be low.
- Transactions will be settled on real time basis.
- Irrespective of amount, it will be in mobile with the customer all the time.
- Reduces the note printing and storing cost.
How is it different from other payment apps?
All payment apps like paypal, PhonePe, GPay etc have to be linked to a bank account or active card to do transactions. Once digital currency become operational the customer will have choice to pay or receive in digital currency as well, in which case it will be credited or debited from the wallet provided by the bank. As such payment apps are intermediary only. They will have to upgrade for digital currency transaction.
Is there any disadvantage to digital currency?
All good things has its own drawback as well.
- Though digital currency does not require storage facility, it cannot be accessed without a device like mobile phone or computer and internet connection.
- It being available in online platform, its prone to hacking and cyber security.
- It requires technical upgration both at issuers end as well users end.
Is there any law for digital currency?
The European Union is adopting E-Money Directives” since 2001 for prudent supervision of electronic money business. USA governs electronic money under the provision of Uniform Commercial Code and Electronic Fund Transfer Act.
Similarly, other countries also have adopted laws for supervision of electronic money.
In India, though there is no definite law on E Rupee, it is supervised by RBI and SEBI through awareness campaign. The Government has also levied 30% tax on virtual assets other than E Rupee.