What is Digital Rupee & How to use E-Rupee in India (2024)?

India has now launched its own version of CBDC (Central Bank Digital Currencies) in the form of the Digital Rupee (e₹) or E-Rupee or eINR in 2023. This makes India one of the very few countries to have their own CBDCs. I am sure you are curious aboth what is Digital Rupee and How to buy Digital Rupee in India and how to use RBI Digital Rupee in India (2024)?

So let’s get to it straightaway.

What is Digital Rupee? Or What is E Rupee?

Digital Rupee (or E-Rupee) will be a tokenised and digital form of Indian fiat currency – Indian Rupee. It will be issued by RBI as India’s official CBDC. As per RBI, e-Rupee represents legal tender and it will be at par with the fiat currency and is exchangeable one-to-one with the fiat currency. Like each banknote is unique, even the Digital Rupee will be uniquely identifiable, regulated and backed by RBI. It will used blockchain based distributed ledger technology

There will be two versions of digital rupee. One will be Digital Rupee for Wholesale (e₹-W) that will cater to financial institutions for interbank settlements. The other will be retail CBDC for general purpose to be used by common people, namely the Digital Rupee for Retail (e₹-R) for consumers and for making regular business transactions.

You can read more about the RBI’s view of the entire concept of Central Bank Digital Currency or CBDC here on which Digital rupee is based on. The government is also working towards a unifed Payment Vision for 2025 and digital currency is just one of the aspects of this broader vision.

How will Digital Rupee Work?

Digital Rupee will be issued by RBI in the same denominations as Indian paper currency and coins, and will be distributed through intermediaries, i.e., banks.

The digital rupee will be available in denominations of e₹2, e₹5, e₹10, e₹20, e₹50, e₹100, e₹200, e₹500 and e₹2000 that can be termed as Digital rupee banknotes. It will also be available as digitial rupee coins in denomination of 50 paise and e₹1. All these will be pegged to Indian Rupee.

The users of eRupee will be able to transact with e₹-R using their digital wallets offered by the participating banks and will be stored on mobile phones and devices as per RBI. One can make payments from one person to other (like P2P) or from one person to merchant (or P2M) as well.

By the way, please don’t confuse Digital Rupee with e-RUPI vouchers that were launched sometime back. Both are different things and eRUPI is voucher based system while Digital eRupee is CBDC and digital version of physical currency.

Will interest be paid on Digital Rupee?

No. e-Rupee is just a digital form of the currency note. So, no interest will be paid on digital currency in your e-wallet holding the digital currency.

So basically, you cannot invest a digital rupee. It can be used as and for physical cash-like features but it will not earn any interest nor can be converted into a bank deposit earning interest. It is not a bank account which will earn you interest if you hold digital rupee.

Difference between Digital Rupee Vs Cryptocurrency

There are bound to be comparisons of Digital Rupee with cryptocurrencies. While the concept is similar, there are some major differences.

A cryptocurrency (like Bitcoin) is a decentralized digital asset and a medium of exchange. Unlike regular currencies, the cryptocurrencies work without any intermediary like banks or central authorities. And this is where global governments are against it. The RBI has been quite vocal and flagged concerns over money laundering, terror financing, tax evasion, etc. with private unregulated cryptocurrencies like Bitcoin, Ether, etc.

Digital Rupee, on the other hand is a legal tender backed by the Indian government and issued by RBI itself. And because of this, the digital rupee will be same as holding a physical rupee equivalent.

RBI has said that it has been planning to launch a digital version of the rupee to help reduce operational costs involved in physical cash management, support and encourage the growing digital Indian economy, create an efficient monetary payment system to further increase financial inclusion and to foster innovation in the payments system.

So that is the answer to questions about What is the point of digital rupee? And that is how is digital Rupee currency is different from cryptocurrency in India (2023)

How is digital Rupee different from UPI?

Digital Rupee Vs UPI are two very different things though it may not seem obvious at first. UPI is just an interface used for making transactions based on physical currency that is in your bank account. Digital Rupee, on the other hand, is another form of the physical fiat currency.

UPI (interface / apps) allow you to make online transactions through their bank account by using fiat or physical currency. Digital rupee on the contrary is a currency itself in digital form. You can say that e-Rupee is more like physical cash that has been digitised.

The bank acts as an intermediary in every UPI transaction. As a result, when you use a UPI app to make payment, your bank account is debited and money is sent to the bank account of the recipient.

In Digital Rupee, you first need to load the digital rupee and in your mobile bank RBI wallet. When you make the payment, the money is transferred from your wallet to the wallet of person/merchant receiving the payment.

While RBI oversees the transaction, the bank itself is not involved in the transaction and also does not route payments. It is only the government and the user that get involved in the digital rupee transactions.

How to Buy and Use RBI Digital Rupee in India (2024)?

Initially, the RBI is running a pilot project of e-₹ and hence, it will not available for everyone. Here is how you can buy and use RBI digital rupee in India

• Initially, RBI has selected 4-8 banks to take part in phase-wise release of the e-rupee pilot program in India. In the first phase, only SBI, ICICI Bank, Yes Bank and IDFC Bank will give e-Rupee. In the second phase, the Bank of Baroda, Union Bank, HDFC Bank, and Kotak Mahindra Bank will also participate in this pilot project. Eventually, I think RBI will allow almost all major banks in this program in coming years once the concept stabilizes.
• All the participating banks have launched their digital rupee apps. One can download one of these bank’s digital rupee app to proceed.
• But since it is a pilot project, to use digital rupee, you need to have an account in the bank selected for the pilot project. Also, your account should be eligible for this pilot project as banks would whitelist only a few customers for this pilot project.
• So basically, via the banks, the RBI has created a closed user group (CUG) initially which consists of limited number of participating merchants and customers in selected cities in India.
• If you are eligible and have downloaded the digital rupee app, then you can use it loan the money and store the digital currency on the wallet similar to what you may have done with other apps like Paytm, Phonepe, etc.
• Once the eRupee wallet is loaded, you can use it to make both types of transactions, i.e., person-to-person (P2P) and person-to-merchant (P2M) transactions using QR codes displayed at merchant shops.

Do you need a bank account to use RBI e-Rupee?

When you use digital rupee for transaction, it goes from one eRupee wallet to another. The transaction is between the wallets (with no intermediary) and hence, the digital rupee does not require any bank account to carry out transactions.

But if you need to load or withdraw the money from the wallet, the users need to have a bank account linked to the wallet. But if someone just wants to receive money in their digital rupee wallet, then there is no need for having a bank account.

This is one major distinguishing feature of the digital rupee when compared to other payment options like UPI, NEFT and RTGS.

What about internet?

Do you need the internet to use digital rupee?

As of now, the digital rupee needs an internet connection to complete the transactions. However, RBI eventually plans to make it offline feasible as well to penetrate into low network remote areas and for basic feature phones.

Will RBI Digital Rupee be taxed at 30% Cryptocurrency Taxation?

No. Digital Rupee is just a medium of exchange and digitized version of physical cash. It is not an unregulated or private cryptocurrency. Therefore, it will not be taxed as per the cryptocurrency taxation rules in India.

So that was all about RBI’s Digital Rupee.

I hope you have now understood how Digital Rupee will work in India, and how to use Digital Rupee in 2024. With the launch of CBDC in India, many might wonder if Digital Rupee can replace cash? I don’t think it will replace cash fully in India. At best, it will slowly gain traction and might see increased adoption in the years to come.