RBI's e-Rupee vs UPI, and Its Potential Future

From a vegetable vendor to a professional sitting in a corporate office, today, Indians already rely on Unified Payments Interface (UPI) a lot more than cash money!

As India is walking on a path to go totally digital in the next few years, the launch of RBI’s Central Bank Digital Currency (CBDC) - digital Rupee has signified the country’s path to achieve the next level of digitization.?

One of the questions that has left most of us wondering is – how is digital Rupee different from UPI?

What Exactly is e-Rupee?

In simple words, digital Rupee or digital currency is a digital form of paper money and hence, the value of the digital Rupee and cash money is the same. 1 digital Rupee means Re 1 cash. The value of digital Rupee never fluctuates. It is being developed as a part of the Indian government's digital India initiative and is intended to provide a secure and convenient alternative to cash transactions. Now, coming to how is digital Rupee different from UPI??

Difference Between e-Rupee and UPI

UPI - It’s just an interface used for making transactions based on physical currency in the user’s bank account, as it uses fiat currency for making transactions.

Digital Rupee - It is just another form of currency akin to fiat currency and that one can’t withdraw physically out of their bank account. Now, with the launch of digital Rupee, India possibly aims to get away with UPI in the long run (although in the current scenario that seems to be very difficult). By relying on digital Rupee, the idea is probably cutting the cost of transporting and managing cash money.?

So, the basic idea behind digital currency is to replace the existence of cash money at some point in time. Of course, there’s a long way to go!

Digital Rupee Eligible Banks and Cities

Currently, RBI has launched a pilot for digital Rupee in 4 cities and partnered with 4 banks for the first round, and later the Central Bank is expected to roll out the service for everyone across the country. Starting 1st December, 2022, the central bank of India started the pilot of digital Rupee in four cities including - Mumbai, New Delhi, Bengaluru, and Bhubaneswar. RBI has partnered with four banks for initial testing - State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank.

The RBI also stated that once the testing begins, it will partner with four more banks including Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank. The service will be expanded to many more cities in the second phase such as in Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.

Benefits of e-Rupee and Its Potential Future

In the long term, the adoption of the e-Rupee could have a significant impact on India's banking system and economy. The use of digital currency can improve financial inclusion by making it easier for individuals, especially those in rural areas, to access banking services and make electronic payments. It can also reduce the cost of financial transactions and increase efficiency by eliminating the need for physical currency.

Additionally, the adoption of the e-Rupee could also have a positive impact on the country's economy by reducing corruption and economic crimes.

Overall, the long-term impact of the e-Rupee on India's banking system and economy is likely to be positive, as it can promote financial inclusion, increase efficiency, and hopefully reduce corruption. However, it is important for the government and relevant stakeholders to carefully consider the potential risks and challenges associated with the implementation of a digital currency, such as cybersecurity and privacy, and in turn implement appropriate measures in place to mitigate these risks.