E-Rupee, Digital Rupee, E-Rupi and Rupay ….. India is confused. What is all this?
Cryptocurrency attracts more eyeballs and mindshare. It also happens to be the factor responsible for the impending birth of e-rupee, and most of central bank digital currency in the world.
Money circulating in the system, but not controlled by any sovereign authority threatens the stability or validity of monetary and fiscal systems. Cryptocurrency poses the challenge, and governments across the globe are coming out with digital currency of their own to counteract the threat.
WHAT IS E-RUPEE?
E-Rupee is the digital version of a rupee. It is the digital rupee referred to in previous parliamentary and RBI discussions. Since the product is still in the design process, don’t be surprised if you see a change of nomenclature before the launch. It is the generic name for central bank digital currency to be launched in India.
DIFFERENCE BETWEEN E-RUPI AND E-RUPEE
E-Rupi is a QR code used to transmit money to a specific user for a specific purpose. It eliminates corruption and the role of middlemen in distribution of social welfare benefits.
E-Rupee will be the digital rupee issued by Reserve Bank of India we will hold in wallets and use for making payments.
Rupay is a domestic card payment service launched as an indigenous alternative to the international Visa and Mastercard platforms.
How will e-rupee be different from electronic versions of money we use now?
Digital or electronic versions of money are not new to us. Plastic money is gradually taking a backseat. However, we need a bank account or a credit card issued by a bank to fund a digital wallet, make payments or for electronic transfer of funds.
E-Rupee will circumvent the banking system for making payments. However, the method of purchase of e-rupee is not yet clear. Will you buy it with cash, by making a payment from your bank account, or will you receive your salary or business payments in e-rupee?
The RBI concept paper on digital rupee answers a few questions here.
There will be two versions of the purported digital currency.
CBDC – RETAIL
CBDC-R will be used by individuals, private institutions and small to medium business.
CBDC- WHOLESALE
CBDC-W will be issued to large corporations, and maybe this is used to pay salaries to employees or make other payments.
CHALLENGES FACED BY CBDC-R
ANONYMITY
Cash still rules the roost in the Indian economy, owing to the anonymity it provides the user. All digital transactions leave a trail, and hence the popularity of e-rupee may suffer, unless it is mandatory.
There may be two operational methods available to users.
1. Token-based method
You can purchase and transact in tokens without your identity being revealed. The issuers can target the lower end of the market with this.
2. Account-based method
Corporations can use this to pay salaries or make payments.
THREAT TO THE BANKING SYSTEM
Remunerated CBDC or CBDC that pays interest will pull money away from the banking system, reducing their capability to lend money for boosting the economy.
SAFE, ENCRYPTED PLATFORMS
The user will expect a higher degree of safety in using a digital currency issued by the government. RBI needs to build robust platforms for this. It also needs to have a mechanism of recall of currency, in case it gets hacked.
INTER-OPERABILITY
The integration of central bank digital currency with the existing systems needs to be worked out. For example, we may be using our bank accounts to buy e-rupee. Can we also use e-rupee to pay loan EMIs, fund digital wallets or transfer money to a bank account?
WILL CRYPTOCURRENCY STILL CONTINUE TO REIGN?
Cryptocurrency is both a currency and a financial asset class. It can be traded on exchanges to make profits.
E-Rupee will only be a currency, not an investment option.
Both can be used to facilitate international transactions. The government of India needs to frame policies which regulate inflow and outflow of money better and plug leakage through the cryptocurrency exchanges.