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The Digital Rupee Conundrum from India’s Perspective

“The history of money is entering a new chapter. Countries are seeking to preserve key aspects of their traditional monetary and financial systems while experimenting with new digital forms of money,” – Kristalina Georgieva, managing director, IMF on CBDC

“The history of money is entering a new chapter. Countries are seeking to preserve key aspects of their traditional monetary and financial systems while experimenting with new digital forms of money,” – Kristalina Georgieva, managing director, IMF on CBDC


For the past few years, the Reserve Bank of India (hereinafter RBI) was of the view to launching Central Bank Digital Currency (CBDC), and finally on December 1st, 2022, it launched its first-ever Digital Currency on a pilot basis. This growth is the result of efforts that had been made earlier in the Financial Sector therefore we are witnessing a highly technology-orientated approach toward Banking and Finance sector. Although, the Central bank has launched it on a pilot basis; nevertheless, it will proliferate the launch across the country within a few upcoming years. Countries like The Bahamas, Nigeria, Eastern Caribbean Union, Russia, Sweden, and China have already launched digital currency in their economy and a few other nations like UK and US are working on it. Though, the challenges are many before E-rupee; nevertheless, the government is positive towards this approach.  

What is Digital Rupee and How does it work?

Digital Rupee is a digital form of physical currency like paper currency and coins. It is in the form of a digital token which represents legal tender and is hence acceptable throughout the country. Digital currency is as same in denominations as in physical currency and works in both ways like person-to-person (P2P) & person-to-merchant (P2M) transfers. It is very much similar in usage to Unified Payments Interface (UPI) but the only difference it creates is that since E-rupee is kept in a wallet, it does not fetch any interest on money.  Digital Rupee can be used on any device like phones, tabs, or laptops, and having a bank account is not a requirement here. 

Why India has recently taken the step into-

There are various reasons behind this launch and currently, it is restricted to a closed user group (CUG) only and some selected locations. The first pilot covers four banks i.e., State Bank of India, ICICI bank, Yes Bank, and IDFC First Bank with four major locations i.e., Mumbai, New Delhi, Bengaluru, and Bhubaneswar. 

Factors responsible for the launch:

  1. To limit the flow of physical currency: Physical currency like paper currency and coins has already served the system for years by replacing the barter system as a mode of payment but after covid-19, it has been realized that a digital system is required to complement cash flow in the country and from health’s vantage point, it is a great move.
  2. To limit the cost of producing physical currency: To maintain the flow of money in the country RBI produces physical currency every year which incurs a huge amount of cost; however, in the case of the digital Rupee, the cost would not be less but gradually it would be considered as a great investment because Digital Rupee would have negligible cost in maintenance of money.
  3. Blockchain Technology: Though E-Rupee cannot be regarded as a cryptocurrency because it is being regulated by the Central Bank of the country itself; however, in many ways, it is similar to VDAs (Virtual Digital Assets), because block-chain technology has been used to regulate the digital rupee which is also common to the VDAs like
  4. To make digital payment seamless and faster: Transaction through UPI and other payment gateways take at least a day to settle the money between banks but this won’t happen in the case of E-rupee because payment would be made through digital wallets and therefore will avoid extra time taken by banks in settlement of money.
  5. To encounter black money and terror funding: The Indian government in the year 2016, introduced demonetization to eradicate black money and encounter terror funding but the effort proved to be futile; nevertheless, the government is looking forward to eradicating the same by introducing technology like digital rupee. Since physical currency maintains anonymity while sending money and hence hide the question of whom and why; moreover, E-rupee leaves trails behind.

What are the risks and challenges before E-Rupee: 

The launch of the e-rupee is crucial for the abovementioned factors but there are many challenges before RBI with regards to its execution. The first and foremost challenge is the willingness and adaptability of people since we all know that around 64 percent of India’s population resides in villages and on top of that many of them are Luddites and if not, then their educational background stands responsible for this inability to join the growing technology and E-rupee is quite technical for those who are new to technology. The second challenge is to maintain the faith of people by reducing cyber risks which is another very important challenge. And the third challenge is UPI, as we are aware of the fact that UPI is widely used by all the fintech-friendly users and data shows that around 76 percent of Indians prefer UPI over any other money transaction system so E-Rupee has to gain the credibility of users, which is quite challenging.

What the future holds in this direction:

Growth is part of every human’s life and if we are willing to grow then we must be ready to accept the challenges which come parallel, since the e-rupee has challenges then it has its advantages too which would help the country to compete in the global market. There are many promising factors attached to the e-rupee; that will ease the business work, make the currency more centralized, reduce the cost, and compete with cryptocurrency. The government is trying to make e-rupee as ubiquitous as possible so that it can achieve its full potential.


The digital rupee is a need of the upcoming generation and tech-savvy users; moreover, a few countries have already launched CBDC successfully in their countries and India is just a few steps away from it. Reserve Bank of India is working on it since 2018 and in the annual budget for 2022 the finance minister had mentioned CBDC as its new launch; moreover, it is phenomenal that they launched it on pilot basis in November (e₹-W) &December (e₹-R) of 2022 itself. The Central Bank and the government are looking forward to building a technology-friendly economy by introducing these kinds of technologies so that India can achieve its true place among other nations.

Author(s) Name: Kalpana Jaiswal (University of Allahabad)