Will e-Re be successful enough to replace physical cash?

The token-based digital currency known as the "digital rupee" has made a dramatic entrance into the market. RBI recently started practicing the concept of e-rupee in pilot mode in 8 of the branches where ICICI, RBI, SBI, and YES Bank are a part of the first phase while Union Bank of India, HDFC, Kotak Mahindra will join the second part.

Let's understand the difference between e rupee and UPI:?

• There are a few differences between physical and digital currencies. The modality makes a difference—one is physical, and the other is digital. The rest of the rules and validations apply to both currencies. The same holds for the e-rupee if the Income Tax Department requests a PAN number for transactions over a particular threshold for physical cash.
• UPI is a platform for conducting transactions, and e-Re is a virtual currency that we can use for online payments and transactions. Additionally, e-Re transactions take place through a digital wallet, unlike UPI, NEFT, and RTGS are all linked to banks and involve the deduction of physical money from those institutions.
• The bank is the native source of online transactions carried out using UPI, NetBanking, etc. It supports Debit cards, Credit cards, and NetBanking, but the mobile phone is the only node for e-rupees for storing and carrying out transactions.?

E rupees are instant and a direct form of payment as there is no inclusion of individual handlers.

Digital currency can also be withdrawn from your bank account (debited) and gathered in digital wallets that can be used to shop, make purchases, and pay bills, in the same way, that you withdraw real money from banks and use it for those purposes.

Testing phase and its effectiveness:

During this testing phase, a daily digital wallet allocation of Rs 25000 and about 20 transactions are allowed. Customers of the collaborating institutions are the target audience for this. This stage tries to assess how effective the e-rupee is. People without bank accounts will also benefit from it, because they can use e-Re straight from their mobile apps, exactly like they would when recharging their phones with a prepaid pack.

If this is successful, it will be akin to a revolution that makes the nation cashless and allows for the rationalization of the costs associated with printing and shipping actual money.

The government will benefit from e-Re's success since they will be able to determine the actual number of transactions made, and where there happens to be a problem, as in the case of real currency, there is no record or tracking of where the money goes missing, whether it has been torn or stolen, or whatever state it may be in. However, it cannot be taken, torn, or forgotten when using e-re. The monitoring of all transactions is possible.

Why e-re over UPI?

• The first and foremost reason for using e-re is that it leaves no audit trails behind as the transactions are made wallet to wallet, but transactions made through UPI leave behind trails as the bank happens to be the mediator.
• Another reason is the settlement risk. Again bank is the mediator, and when a transaction happens through UPI, the two participating banks need to have an interbank settlement which may take time or even get canceled. There's no such risk involved in the case of e-Re.?
• E-re provides anonymity, is free of settlement risk, is fast, and there won't be any charges to use e-Re.?

Risks and Conclusion:

Security is the only issue it might encounter. And it is the key area that needs prioritization for its successful integration into society and the economy. E-Re should be safe, free from the possibility of hacker assaults and digital thefts, and different enough from UPI or other digital banking systems that users can rely on it, and get used to it.