The Reserve Bank of India proposed a pilot launch of e-rupees on Friday as their own version of Central Bank Digital Currency (CBDC) for specific use cases. According to the RBI’s shared ‘Concept Note’, the goal is to bring awareness to the concept of digital currencies in general and the planned features of the Digital Rupee in particular.

This Reserve Bank’s approach is governed by two basic considerations – to create a digital Rupee that is as close as possible to a paper currency and to manage the process of introducing the digital Rupee in a seamless manner. 

As mentioned in the release, the Central Bank Digital Currency (CBDC) is defined as a legal tender, in a digital form of currency notes issued by a central bank, which will be known as ‘e-rupee’. It will be similar to sovereign paper currency, however, will have a different form, exchangeable at par with the existing currency and accepted as a medium of payment, legal tender and a safe store of value. On the central Bank balance sheet, CBDs will appear as a liability.

This RBI’s Concept Note explains the objectives, choices, benefits and risks of issuing a CBDC in India, referred to as e₹ (digital Rupee). The e₹ will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper. It also has all the transactional benefits of other forms of digital money. 

The e-rupee can also become an alternative to cryptocurrency. As the RBI plans to fully launch the e-rupee in limited pilot launches, the digital rupee will serve alongside the paper money.

The Central Bank showed its concerns with regard to the financial and macroeconomic stability of India with the unfettered use of cryptocurrencies. As unrestrained use of the crypto restricts the Governments ability to monitor and regulate monetary policies, this paves the way for CBDC.

“CBDCs will provide the public with [the] benefits of virtual currencies while ensuring consumer protection by avoiding the damaging social and economic consequences of private virtual currencies,” the RBI said.

The RBI plans on rolling out the e-rupee in limited pilot launches, with the intent of implementing it as an additional form of currency issued alongside paper money. The paper states the e-rupee will also serve as an alternative to cryptocurrencies.

The unfettered use of cryptocurrencies poses a risk to the financial and macroeconomic stability of India, the central bank said, which diminishes the government’s ability to determine and regulate monetary policy, furthering the need for a CBDC.

“CBDCs will provide the public with [the] benefits of virtual currencies while ensuring consumer protection by avoiding the damaging social and economic consequences of private virtual currencies,” the RBI said.

According to the release note, “The key motivations for exploring the issuance of CBDC in India among others include reduction in operational costs involved in physical cash management, fostering financial inclusion, bringing resilience, efficiency, and innovation in the payments system, adding efficiency to the settlement system, boosting innovation in cross-border payments space and providing Concept Note on CBDC 7 public with uses that any private virtual currencies can provide, without the associated risks. The use of the offline features in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or a mobile network is not available.”

The paper further states “Currently, we are at the forefront of a watershed movement in the evolution of currency that will decisively change the very nature of money and its functions. CBDCs are being seen as a promising invention and as the next step in the evolutionary progression of sovereign currency.”

In the Union Budget for 2022-23, the finance minister had said the RBI would roll out a digital equivalent to the rupee in the current financial year.

The RBI informed that the central bank is supposed to release the two versions of CBDC with an aim to make payments more, trusted, robust and efficient. The first release will be for public use to make retail payments and the second will be to make wholesale transactions and to make transactions between banks.

“The potential for [an] anonymous digital currency to facilitate [a] shadow-economy and illegal transactions makes it highly unlikely that any CBDC would be designed to fully match the levels of anonymity and privacy currently available with physical cash,” the central bank wrote.

The RBI said in a statement that from time to time, they will continue to inform and update about the specific features and benefits of the digital rupee.