What is Digital Rupee and How to Get It?
The Digital Rupee, officially known as the Central Bank Digital Currency (CBDC) or e₹, represents a significant leap in India's financial landscape. Issued and regulated by the Reserve Bank of India (RBI), the Digital Rupee is a digital counterpart to the physical currency, designed to facilitate seamless and secure transactions in an increasingly digital economy.
Understanding the Digital Rupee
The Digital Rupee is a digital form of India's legal tender, mirroring the value and function of traditional banknotes and coins. Unlike decentralized cryptocurrencies such as Bitcoin, the Digital Rupee is centralized and backed by the RBI, ensuring stability and trust. It aims to provide a secure, efficient, and accessible alternative to physical cash, promoting financial inclusion and reducing the reliance on paper currency.
Key Features of the Digital Rupee
- Sovereign Backing: As an official currency issued by the RBI, the Digital Rupee carries the full faith and credit of the Indian government.
- Digital Wallets: Users can store and manage their Digital Rupee holdings through digital wallets provided by participating banks. These wallets facilitate easy transactions and real-time transfers.
- Interoperability with UPI: The Digital Rupee is designed to work seamlessly with existing payment systems, including the Unified Payments Interface (UPI), allowing users to make payments using familiar platforms.
- Programmable Features: The Digital Rupee incorporates programmable capabilities, enabling conditional transactions and smart contracts, which can enhance efficiency in various financial operations.
How is the Digital Rupee Different from UPI?
While both the Digital Rupee and UPI are integral to India's digital payment ecosystem, they serve distinct roles:
Nature of the System:
- Digital Rupee: A digital form of legal tender issued by the RBI, representing a direct claim on the central bank.
- UPI: A real-time payment system developed by the National Payments Corporation of India (NPCI) that facilitates inter-bank transactions through a unified interface.
Functionality
- Digital Rupee: Serves as money itself, allowing users to make payments and store value digitally without the need for a bank intermediary.
- UPI: Acts as a platform enabling the transfer of funds between bank accounts; it does not constitute money but facilitates the movement of money.
Transaction Process:
- Digital Rupee: Transactions involve the transfer of digital currency between wallets, akin to handing over physical cash but in a digital format.
- UPI: Transactions involve debiting funds from the payer's bank account and crediting them to the payee's bank account, mediated by the UPI platform.
Bank Dependency:
- Digital Rupee: Users can transact without a traditional bank account by using digital wallets.
- UPI: Requires users to have active bank accounts linked to the UPI platform.
Anonymity:
- Digital Rupee: Offers a degree of anonymity similar to cash transactions, as transfers can occur without disclosing bank account details.
- UPI: Transactions are traceable, with records maintained by banks and the NPCI.
How to Get and Use Digital Rupee?
To begin using the Digital Rupee, individuals can follow these steps:
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Download a Digital Rupee Wallet
Participating banks have developed dedicated apps for the Digital Rupee. For instance, ICICI Bank offers the "Digital Rupee by ICICI Bank" app, while HDFC Bank provides the "HDFC Bank Digital Rupee" app. These apps are available on major app stores. -
Registration
After downloading the app, users need to register by selecting the SIM card linked to their bank account, setting up a login PIN or biometric authentication, and linking their bank account to the wallet. -
Loading the Wallet
Users can load their Digital Rupee wallets by transferring funds from their linked bank accounts. The Digital Rupee is available in denominations similar to physical currency, such as ₹1, ₹2, ₹10, ₹20, ₹50, ₹100, and ₹500. -
Conducting Transactions
- Person-to-Person (P2P): Users can transfer Digital Rupees to others by entering the recipient's mobile number or scanning their QR code.
- Person-to-Merchant (P2M): Payments to merchants can be made by scanning the merchant's Digital Rupee QR code. Notably, the Digital Rupee app supports interoperability with existing UPI QR codes, allowing users to make payments at merchants who accept UPI.
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Redeeming Digital Rupees
If users wish to convert their Digital Rupee back into their bank account balance, they can use the 'Redeem' or 'Unload' feature within the wallet app, transferring the digital currency back into their linked bank account.
Recent Developments and Adoption
Since its pilot launch in December 2022, the Digital Rupee has seen gradual adoption. Initially, only select banks were permitted to offer Digital Rupee services. However, as of April 2024, the RBI expanded access, allowing payment firms to participate in the Digital Rupee ecosystem. Fintech companies like Cred have joined the initiative, aiming to streamline Digital Rupee transactions and boost adoption among users.
Despite initial enthusiasm, the usage of the Digital Rupee has faced challenges. Transactions peaked at over a million per day but have since declined, highlighting the need for increased awareness and integration into everyday financial activities. The RBI continues to collaborate with financial institutions and fintech companies to enhance the functionality and appeal of the Digital Rupee.
Final Thoughts
The Digital Rupee represents a transformative step in India's journey towards a cashless and digitally empowered economy. By introducing a central bank digital currency (CBDC), the Reserve Bank of India (RBI) aims to modernize financial transactions, reduce dependence on physical cash, and promote financial inclusion. Unlike traditional digital payment systems such as UPI, the Digital Rupee acts as a direct replacement for cash, offering users the convenience of digital transactions while maintaining the legal tender status of physical currency.