Digital rupee facts for kids
Quick facts for kids Digital Rupee (e₹) |
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| ISO 4217 Code | INR | ||
| User(s) |  India |
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| Inflation |  5.02% (October 2023) |
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| Source | RBI – Annual Inflation Report | ||
| Method | Consumer price index (India) | ||
| Pegged with |  Indian Rupee (at par) |
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| Subunit | |||
| 1⁄100 | paisa | ||
| Symbol | e₹ | ||
| paisa |  |
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| Coins | |||
| Freq. used | 50e, e₹1 |
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| Banknotes | |||
| Freq. used | e₹2, e₹5, e₹10, e₹20, e₹50, e₹100, e₹200, e₹500, e₹2,000 | ||
| Printer | * Reserve Bank Innovation Hub
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The Digital Rupee (e₹) or eINR is a digital form of the Indian Rupee. It is issued by the Reserve Bank of India (RBI), which is India's central bank. Think of it like a digital version of the cash you use every day.
The idea for the Digital Rupee started in 2017. It was officially launched on December 1, 2022. This digital money uses a special technology called blockchain or distributed-ledger technology. This technology helps keep track of all transactions safely.
Just like physical banknotes, each Digital Rupee is unique. The RBI controls and regulates it. The goal is to make it available both online and offline. The RBI launched two types:
- Digital Rupee for Wholesale (e₹-W): This is for big financial groups like banks to settle large payments between themselves.
- Digital Rupee for Retail (e₹-R): This is for everyday use by people and businesses.
One main reason for creating the Digital Rupee is to save money. It costs a lot to print and manage physical cash. By using digital money, India can save billions of rupees each year.
Contents
How the Digital Rupee Started
In 2017, a special group was formed to look into digital money in India. This group suggested creating a digital version of India's currency using Distributed Ledger Technology (DLT). The Reserve Bank of India (RBI) then started planning for this new digital currency.
In 2020, the RBI announced a "regulatory sandbox." This is like a safe testing ground for new technologies. They wanted to test how digital payments could work across borders.
In 2021, the Indian Government suggested a law to ban most cryptocurrencies. At the same time, they wanted to give the RBI the power to create its own digital currency. This was called the "programmable digital rupee." The RBI planned to use its experience from systems like Unified Payments Interface (UPI) to help with this.
The RBI also looked at how a digital currency could help people who don't have bank accounts. They wanted to make sure it followed laws against money laundering (making illegally gained money seem legal). The COVID-19 pandemic also showed how important digital transactions were becoming.
In 2021, a system called e-RUPI was launched. This was a prepaid e-voucher that used QR codes or SMS. It didn't need a bank account. This system helped the RBI learn what was needed for a nationwide digital currency.
In 2022, the government announced that the Digital Rupee would be rolled out starting in 2023. The International Monetary Fund (IMF) also said that the Digital Rupee could help India manage its currency and make international payments easier.
The first test (pilot) for the wholesale Digital Rupee (e₹-W) began on November 1, 2022. It was used for trading government bonds between banks. This helps make these transactions faster and cheaper. The retail Digital Rupee (e₹-R) pilot started on December 1, 2022. This test involved a small group of customers and shops.
How the Digital Rupee Works
The RBI started designing the Digital Rupee in 2022. A new law was passed to allow the RBI to create this digital money. The Reserve Bank Innovation Hub (RBIH) is in charge of testing it before it's fully launched.
The RBI plans for the Digital Rupee to be used for payments both inside India and with other countries. They have two main types:
- Retail CBDC: This is for individuals and their daily financial needs.
- Wholesale CBDC: This is for banks and financial institutions to manage money and keep the economy stable.
The RBI is also looking into "purpose-driven CBDC." This means digital money that can be programmed for specific uses, like giving government benefits directly to people. This could help reduce corruption.
The Digital Rupee can be either "token-based" or "account-based."
- Token-based is like physical cash. You hold the digital token, and it's used for retail payments.
- Account-based is more for banks and large transactions, where balances are kept in accounts.
For retail transactions, you will likely use a digital wallet. You won't need a bank account to use it. Small payments might be anonymous, like cash. However, larger payments will need you to identify yourself to follow anti-money laundering laws.
The Digital Rupee is meant to be an extra way to pay, not to replace current payment systems. Its goals are to:
- Support the growing digital economy.
- Lower the cost of managing physical cash.
- Create a more efficient payment system.
- Help more people access financial services.
The Digital Rupee will always have the same value as physical rupees. This helps build trust and safety.
Using Digital Rupee Offline
The RBI is working on making the Digital Rupee work even without internet access. This means you could use it in places with bad or no network coverage. This feature would allow transactions to be checked and confirmed without needing to connect to an online system.
On February 8, 2024, the RBI announced that the retail Digital Rupee (e₹-R) will support offline transactions. They are testing different ways for this to work in various areas, like mountains, villages, and cities.
The Digital Rupee can also be "programmable." This means it can be set up for specific uses. For example, a government agency could ensure that certain payments are used only for defined benefits. Companies could also program it for specific expenses, like staff travel. It could even be set to work only for a certain time period or in certain areas.
Testing the Digital Rupee
The wholesale Digital Rupee (e₹-W) started its test on November 1, 2022. It's used for buying and selling government bonds. This helps reduce costs and risks for banks. Many big banks like State Bank of India, HDFC Bank, and ICICI Bank are part of this test.
The retail Digital Rupee (e₹-R) started its test in December 2022. Each participating bank tested it with thousands of people. The RBI is working with payment companies like PayNearby and Bankit to add the Digital Rupee as a payment option. The National Payments Corporation of India (NPCI) manages the technical side.
The RBI is also testing how the Digital Rupee can be used for payments between different countries. On November 1, 2022, the RBI used the Digital Rupee to settle government bond transactions worth about ₹2.75 billion (around $33 million).
The first phase of the retail pilot project started in cities like Mumbai and New Delhi. Later, more cities were added. You can use e₹-R to pay other people (P2P) or to pay merchants (P2M). You can pay by scanning a QR code. For small payments, your transactions won't be tracked by banks to keep your privacy.
By December 2023, the RBI reached its goal of one million retail transactions per day for the Digital Rupee. This showed that the system could handle a lot of activity. Major payment apps like Google Pay and PhonePe are also expected to offer Digital Rupee access in 2024.
Using Digital Rupee with UPI
As part of the Digital Rupee pilot, banks like Canara Bank and Yes Bank have made their Digital Rupee apps work with Unified Payments Interface (UPI). This means you can scan an existing UPI QR code and pay using your Digital Rupee. You don't need a separate setup for the Digital Rupee.
State Bank of India (SBI) also started offering UPI compatibility with the Digital Rupee in September 2023. Other banks like Bank of Baroda, Kotak Mahindra Bank, Axis Bank, and HDFC Bank have also added this feature. HDFC Bank was the first commercial bank to fully integrate UPI QR codes with the Digital Rupee.
Payments Across Borders
The RBI is exploring how the Digital Rupee can be used for fast and cheap payments between countries. They are working with central banks in other countries and organizations like SWIFT. A shared platform, like Project Dunbar led by the Bank for International Settlements (BIS), could help with this.
Who is Using the Digital Rupee?
Reliance Retail, a large retail chain, was one of the first big businesses to accept the retail Digital Rupee (e₹-R). CCAvenue became the first online payment company to process e₹-R for online shopping.
Indraprastha Gas and IndusInd Bank also partnered to allow Digital Rupee payments at some gas stations in the National Capital Region (NCR).
In April 2024, IndusInd Bank used programmable Digital Rupees to pay farmers for carbon credits. This allowed farmers to receive digital money for their efforts in reducing carbon, instead of just regular money.
The total value of Digital Rupee in circulation grew from ₹100 crore in December 2023 to ₹323.5 crore by May 2024. As of April 2024, 4.6 million customers and 400,000 businesses were registered to use the Digital Rupee.
How the Digital Rupee Affects the Economy
The Digital Rupee is expected to have a big impact on India's economy. It will help India move towards a cashless society. This could make payment systems stronger and encourage new ways of making payments, especially for international transfers. These payments could become faster and cheaper.
One of the biggest economic benefits is saving money on printing and managing physical cash. India could save billions of rupees each year by reducing the need for paper currency. The Digital Rupee also aims to lower transaction costs, making it easier and cheaper to send money both within India and internationally. This is especially good for people who send money home from other countries, as they often pay high fees.
The Digital Rupee can also reduce risks in the financial system. Transactions made with digital wallets using blockchain technology are final and cannot be changed. This can make the financial sector more stable.
In the long run, the Digital Rupee might also reduce India's reliance on the U.S. dollar for international trade. By offering a strong alternative for cross-border payments, it could strengthen India's position in the global financial system.
See also
