Is e-RUPI a Cryptocurrency like Bitcoin?

No, not at all. The newly launched e-RUPI is not a cryptocurrency or even a digital form of Indian Rupee. E-RUPI is rather a prepaid, social-service voucher system launched by the Indian government.

The confusion that many people have is due to the use of terms like ‘digital’ and ‘currency’ together. In fact, a client messaged me asking about my advice on the Indian government’s own cryptocurrency!

Please have no doubts.

E-RUPI is not a cryptocurrency.

Don’t get confused with discussions about e-RUPI vs. Cryptocurrency or with e-RUPI vs. Bitcoin.

So then… what exactly is it?

What is e-RUPI?

It is simply a prepaid voucher-based digital payment system. The e-RUPI vouchers are person-specific as well as purpose-specific. And for starters, I think these will mostly be used for the main use-case of providing welfare services and subsidies to the under-banked part of the Indian population.

From what I understand, e-RUPI vouchers will be delivered to the mobile of the beneficiaries in form of QR codes or SMS text. The voucher holders will then be able to redeem the voucher without a card, digital payments app, or internet banking access, at their service providers.

This is expected to provide a leak-proof welfare delivery service using a one-time payment mechanism. It eliminates the notorious middlemen by ensuring that the benefit sponsors connect directly to the beneficiaries without any mediation.

I think that the main aim behind launching e-RUPI is to accelerate the financial inclusion of the unbanked population and is going to make Direct Benefit Transfer (DBT) more efficient and leak-proof.

But all said and done, is this really India’s first step towards acceptance of ‘digital currencies’ and eventually, going for its own cryptocurrency?

To be honest, I am not sure.

RBI has been quite vocal about its apprehensions about cryptocurrencies in general. Cryptos like Bitcoin is not illegal in India. But RBI isn’t exactly very gung-ho about the private cryptocurrencies. There is some noise about the central bank exploring launching its own CBDC (or Central Bank Digital Currency) as it continues to assess the financial stability implications of introducing such a Central Bank Digital Currency (CBDC) in India (as mentioned here in RBI’s note on Financial Sector in the New Decade).

The RBI has stressed the need for its own CBDCs as it is “desirable not just for the benefits they create in payments systems, but also might be necessary to protect the general public in an environment of volatile private VCs”. You can read more about this discussion on the RBI website here titled Central Bank Digital Currency – Is This the Future of Money?

CBDC or digital currency is an idea where the Indian Rupee just takes a digital avatar. On the other hand, in the case of e-RUPI, no new money is being created as the money is already available with the entity providing the benefit and which wants to transfer it to the platform for the beneficiary. In the case of CBDC, new money will be created from what I understand about these things.

e-RUPI is backed by the Indian Rupee as an underlying asset and thus, very different from cryptocurrencies like Bitcoin and other Altcoins. If you compare it with private cryptos like Bitcoin, Ethereum, etc., a CBDC is a form of virtual currency issued by a central bank. It is an alternative to its regular physical currency. It’s like these are stable coins backed by sovereign reserves. Since these virtual currencies are backed by the issuing country’s own law itself, I don’t think these CBDCs will have volatile fluctuations like crypto-assets like Bitcoin or Ethereum.

A month or so back, RBI’s deputy governor had said that the RBI defines a CBDC as a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different. He also said that the central bank is currently working towards a phased implementation strategy of bringing about the digital Rupee…and that CBDC… is likely to be in the arsenal of every central bank going forward. Setting this up will require careful calibration and a nuanced approach in implementation.

So are there any timelines for India’s own CBDC?

I think atleast the first version might be here before completion of the next year if not earlier. The more these things get delayed the more cryptocurrencies will gain ground. And globally, central banks don’t want that. From what I have understood about blockchain and cryptos till now, these are here to stay. Countries might ban them selectively. But they virtually cannot eliminate them altogether due to their trustless, distributed existence. If not impossible, it is extremely difficult to make it happen. So the future of cryptocurrencies and isn’t exactly too bad. Ofcourse this is a developing story so we need to wait and see how it eventually ends up.

If you are bullish about Bitcoin, you may want to read what about hodling Bitcoin for 10 years?

Now coming back to our original e-RUPI discussion.

Just a reminder (again) that e-RUPI is not a cryptocurrency.

Further Reading – Should you invest in Bitcoin?

But is e-RUPI the first step towards the launch of India’s very own digital cryptocurrency?

It’s possible. Only the government knows what it is up to.

Whether it leads to a new government-backed cryptocurrency or not, it is clear that the launch of e-RUPI does help our country maintain its pioneering position as a leading nation when it comes to adopting and scaling up digital payments infrastructure.

So that was about e-RUPI & how it might just be the testing ground for Indian authorities before we see the launch of digital cryptocurrency in India.

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