INTRODUCTION
As digital technologies rapidly reshape the global financial ecosystem, India has entered a significant chapter in its monetary history: the launch of the Digital Rupee or Central Bank Digital Currency (CBDC) by the Reserve Bank of India (RBI). Even though the move makes India similar to other countries exploring sovereign digital coins, it highlights a fresh set of issues related to laws, regulations, and policymaking. Its goal is to give users cryptocurrency benefits and, at the same time, keep the stability of the legal tender. The goal of the Digital Rupee is to change the payment system in India by making people use digital means instead of having to rely on paper currency.
UNDERSTANDING DIGITAL RUPEE
While cryptocurrencies such as Bitcoin and Ethereum are decentralised and can be very unpredictable, the Digital Rupee is authorised by the RBI and managed centrally. It works just like the physical rupee in a digital way and tries to offer safe, fast, and open payment processes. RBI has come up with two different options for making these changes, which are:
Retail CBDC (e₹-R) [1]It is developed to provide the general public with a way to spend or pay each day for groceries or send remittances.
Wholesale CBDC (e₹-W)[2]It is developed to support transactions by banks, which can help increase efficiency and save funds.
Digital Rupee is comparable to physical cash, is usable in economic transactions, and now it is here to stay alongside paper cash.
BENEFITS OF DIGITAL RUPEE
- Financial Inclusion: It gives people, lacking traditional bank access, the means to join the main branches of the economy.
- Reduced Transaction Costs: It saves money on fees, since banks have become more direct and do not require as many intermediaries.
- Efficiency and Speed: It is common for transactions to be processed speedily, in seconds, despite whether people are in one nation or another.
- Transparency and Security: Blockchain technology makes all transactions possible to see and, at the same time, guarantees security.
- Government Control and Regulation: Having authority over the issue, the RBI is responsible for the circulation and policies that govern the Digital Rupee.
LEGAL FRAMEWORK
- Amendments to the RBI Act, 1934
Issuing and regulating currency in India is the main responsibility given by the RBI Act of 1934. Before 2022, this Act only talked about “banknotes,” and they meant cash currency that people could hold in their hands. The act of legalising digital currency was done by the Finance Act, 2022, amending Section 22 of the RBI Act, which previously permitted only banknotes to be issued by the RBI. Because of the amendment, the RBI has the authority to declare the CBDC as legal tender and match its status to that of physical cash.
- Role of the Finance Bill, 2022
Laying the legal base for India’s CBDC was greatly helped by the Finance Bill, 2022. The Bill provided a legal explanation for Central Bank Digital Currency in the RBI Act. Although people can use CBDC to make transactions, the Finance Bill aims to tax virtual digital assets, mainly focusing on cryptocurrencies. Though Digital Rupee itself is not taxed like an asset, the new regulations help show the difference between it and privately mined digital tokens.
- Role of the Information Technology Act, 2000
In the Information Technology Act, 2000 (IT Act), e-records and digital signatures are dealt with.[3] Wallets and payment platforms in the CBDC system need secure electronic communication, so the IT Act is important for their recognition.
- Role of The Payment and Settlement Systems Act, 2007 (PSS Act)
PSS Act, 2007 (Payment and Settlement Systems) gives the RBI the authority to oversee payment systems in India[4]. Since the CBDC should work together with existing retail and wholesale platforms, its operations need to follow the PSS guidelines.
- Data Protection Law (Digital Personal Data Protection Act, 2023).
This Act will assist in regulating the way user data is required for CBDC transactions. Privacy should be included in the system design for people using CBDC at stores.
KEY LEGAL IMPLICATIONS
- Constitutional Dimensions: Privacy and Surveillance
Data privacy is one of the biggest legal problems today. Since the Digital Rupee is traceable, it will allow the RBI or government to watch over transactions. According to Article 21 of the Indian Constitution, citizens are ensured their privacy [5](Justice K.S. Puttaswamy v. Union of India, 2017 stated. Because there is no complete law on data protection (as of mid-2025, the Digital Personal Data Protection Act, 2023, is still being revised), digital currency surveillance could cause serious concerns about privacy under the constitution.
- Monetary Sovereignty and Centralisation:
Managing and administering money can affect issues related to the centralisation of power. With the introduction of Digital Rupees, the RBI has more power over Indian money matters.
-Money supply
-Inflation targeting
-Financial surveillance
However, having a central structure could cause concern over possible abuse, mainly in cases where CBDCs can be controlled for specific purposes. There is reportedly a tension existing between government and personal rights, and future courts or legislators might have to weigh in on it.
- Impact on Banking and Payment Laws:
The arrival of CBDC changes and challenges current rules in the financial industry.
Usually, banks make more money by receiving deposits and lending them out. If customers prefer CBDC, it may reduce bank deposits, affecting their credit-creating capacity. The Banking Regulation Act, the Payment and Settlement Systems Act, and the Information Technology Act need to be adjusted or reconsidered to cover transactions made using a CBDC. On top of that, there are no clear rules on intermediary liability, issues with online payments, and protecting e-wallets in law.
- Criminal and Cyber Law Implications:
In the same way as with other digital systems, cybersecurity is a concern with the Digital Rupee. Possible legal issues are: hacking, phishing, stealing funds from CBDC wallets, and the illegal copying of digital currency. Sometimes, if people could try, special laws would be needed. Bhartiya Nyaya Sanhita, IT Act, and the proposed Digital India Act are required to update their regulations by making it clear when CBDC abuse is an offence, clarifying who can handle cases involving such crimes internationally, and mentioning the possible penalties and investigation steps.
- Taxation and Legal Tender Usage:
Because income tax is a way to pay money instead of an asset, it is covered by the Income Tax Act. The GST Act has been added since paying in e₹ is the same as using cash.[6]. But due to its programmable functions, the Digital Rupee could manage: Taking away taxes from digital costs, providing subsidies, and giving benefits to the right holders, hence raising some concerns about giving legislative authority to technology, an issue that courts may need to resolve.
CHALLENGES
- There is not yet a full set of laws for the Digital Rupee, even though the Finance Act, 2022, and the amendments to the RBI Act provide a summary.
- People are concerned about issues related to privacy and data being watched.
Across the globe, people worry that CBDCs could give the government too much power to watch our activities. Users’ transactions using the Digital Rupee can be watched in real time, helping the state know about each person’s expenditure habits..
- Financial Threat- With people shifting much of their funds to CBDC wallets, banks may lose part of their deposit-taking role.
- Even though the Digital Rupee is intended to help more people take part in the financial system, it might leave some people behind since not all have smartphones, steady internet, or know how to use technology, as well as rural and elderly communities may have trouble adopting a CBDC payment method.
- Digital Rupees, since they are digital, may be attacked by cyber criminals or experience problems with systems and technology. Cybercrimes that could occur are credit card breaches, identity fraud, and making copies of digital currencies.
- CBDCs have an important quality called programmability, which lets authorities control spending habits. Although it is good for helping some groups, it might end up being used for too much government control. Governments can reduce spending on some areas, prohibit saving money, or add conditions for personal actions.
CONCLUSION
The Digital Rupee is an innovation in the Indian economy. Cryptocurrencies help the economy, yet their legal issues are just as important. As the country turns to a digital economy, India must make sure its legal system progresses to secure people’s rights, ensure financial stability, and maintain the principles set by its constitution. Digital Rupee leads the way to modernise the economy of India. Still, just like with many advancements, it brings up challenging legal and constitutional issues. Familiarising oneself with digital currency means questioning the changes in laws that go along with technological developments. The legal system has to guide and influence the online developments in India’s financial sector.
Author(s) Name: Gauri Dixit (Atal Bihari Vajpayee School of Legal Studies, CSJMU, Kanpur)
References:
[1] ‘CBDC’s come in two forms: retail and wholesale. What’s the difference?’(World Economic Forum, 06 february 2024) < https://www.weforum.org/stories/2024/02/wholesale-retail-cbdcs-difference/ > accessed 09 June 2024
[2] Ibid
[3] Information Technology Act, 2000, s 4
[4] The Payment and Settlement Systems Act, 2007, s 4
[5] Justice K.S. Puttaswamy (Retd.) and Anr. v. Union of India, (2017) SCC 1.
[6] Team Finfirst ‘Central Bank Digital Currency In India: 7 myths busted’(IDFC First Bank, 07 November 2023)< https://www.idfcfirstbank.com/finfirst-blogs/finance/7-myths-of-central-bank-digital-currency-india> accessed on 09 June 2025
