Digital Rupee

Syllabus Areas:

GS III - Economy

For years, India’s digital payments ecosystem revolved around PhonePe, Google Pay, UPI, net banking, and similar platforms. These systems rely heavily on internet connectivity, bank accounts, and multiple intermediaries.
To overcome these limitations and modernise India’s monetary system, the Reserve Bank of India (RBI) introduced the Digital Rupee — a landmark step in India’s financial evolution.

The Digital Rupee represents a new phase where the currency that once existed only as physical notes can now exist as a secure, RBI-backed digital token stored in mobile wallets.
It is part of a global shift towards Central Bank Digital Currencies (CBDCs).

What is the Digital Rupee (CBDC)?

The Digital Rupee is a digital form of fiat currency issued by the Reserve Bank of India, functioning exactly like physical currency but existing only in electronic form.

Key Features

  • It is legal tender, backed by the RBI under the RBI Act, 1934.
  • It can be used for all types of transactions, like cash.
  • It provides the convenience of digital payments with the sovereign guarantee of physical currency.
  • It is stored in a CBDC e-wallet instead of a bank account.
  • Tagline: “Cash but Digital.”

Why Was the Digital Rupee Introduced?

The RBI launched CBDC to address multiple structural issues:

  • Reduce dependence on physical cash: Printing, transporting, storing, and replacing damaged notes is expensive. Digital Rupee lowers these costs.
  • Promote digital transactions: It strengthens India’s digital economy by offering a sovereign alternative to private payment systems.
  • Improve payment efficiency: Faster, more secure, and complaint-free transactions with no intermediaries.
  • Enhance financial inclusion: Offline capability supports regions with low internet access.
Digital Rupee

Types of Digital Rupee

Token-Based Digital Rupee (Retail CBDC – e₹-R) Account-Based Digital Rupee (Wholesale CBDC – e₹-W)
Works like a digital version of a currency note. Used only by selected banks and financial institutions .
Whoever holds it, owns it — similar to physical cash. Used to settle large-value interbank transfers.
Used for consumer and merchant transactions . Not accessible to the general public.
Supports QR-based payments and person-to-person transfers.

Storage: Where is the Digital Rupee Kept?

The Digital Rupee is stored in a CBDC e-wallet, provided by participating banks.

Features of the e-wallet

  • Available on Google Play Store / Apple App Store
  • Can send or receive money instantly
  • Supports CBDC QR codes and UPI QR codes
  • No minimum balance required
  • Wallet can be restored if phone is lost, using the same mobile number
  • Protected by advanced cybersecurity systems

Who Can Use It?

Current Phase

  • Only users and merchants included in the RBI’s pilot project
  • Must download the bank’s CBDC app and complete registration
  • Customer care support is available for troubleshooting

Future Phase

  • Expected to roll out nationally, open to all citizens

How Is the Digital Rupee Created?

The creation process mirrors physical currency:

  1. RBI issues Digital Rupee units (just like printing notes).
  2. These are transferred to banks and authorised institutions electronically.
  3. Banks distribute these units to customers via CBDC wallets.

This ensures full centralised control and sovereign backing.

Is a Bank Account Required?

Pilot Stage

Yes, a savings account link is required for:

  • Setting up the wallet
  • Loading money into the wallet

Future Plans

RBI intends to explore wallet-only CBDC usage, allowing people without bank accounts to use the Digital Rupee.

Charges

  • No transaction charges for CBDC usage.

Offline Feature: How Does It Work?

Designed to support low-connectivity regions, the Digital Rupee can function even without internet using:

  1. Telecom-based technologies
  2. NFC (Near Field Communication)

This enables payments in:

  • Remote areas
  • Disaster-hit regions
  • Rural clusters with patchy networks

This feature is a major differentiator from UPI.

Will CBDC Earn Interest?

No. The CBDC wallet behaves like a virtual cash purse. Just like cash in your pocket does not earn interest, Digital Rupee also does not earn interest.

Global Status of CBDCs

Fully Implemented Countries

  • Bahamas (Sand Dollar)
  • Jamaica (Jam-Dex)
  • Nigeria (eNaira)

Pilot Stage

  • India
  • China (Digital Yuan)
  • Indonesia

Many countries are exploring CBDCs as part of monetary modernisation.

What Exactly Is the e-Rupee Wallet?

  • A secure digital purse that stores Digital Rupee units.
  • Launched for retail users on 1 December 2022.
  • Operates with top-grade cybersecurity protocols.
  • If mobile is lost:
    • Wallet can be restored on another phone with the same number.
  • No need to maintain a minimum balance.

The Digital Rupee is not just “another payment app.” It represents a fundamental transformation in how money itself exists and moves. By offering the sovereign trust of physical cash and the efficiency of digital technology, CBDC has the potential to reshape India’s payment landscape — from rural offline transactions to secure interbank settlements.

India is building not only a digital payment system, but a digital monetary future.