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India’s own Digital Currency: e-rupee launch by RBI

Key Takeaways
  • Introduction of CBDC by RBI projects one of the potential changes in digital payments method.
  • While CBDC has been rolled out in 15 cities and not in all cities, to support such digital payments various changes in regulatory framework, technology development have been analyzed.
14-Jul-2023 Nandini Lahoty
India’s own Digital Currency: e-rupee launch by RBI

Understanding the nature of Central Bank Digital Currency?  

A CBDC is a digital payment instrument that is a direct obligation of the central bank and is valued in the national unit of account. It serves as a medium of exchange, a store of value, and a unit of account and is the official currency issued by the Central Bank in digital form. It is interchangeable one-to-one with fiat cash and is the same as fiat currency.

Difference between cryptocurrency and CBDC

Bitcoin and Dogecoin are two examples of cryptocurrencies that are kept on a decentralized blockchain network, where transactions can take place, be validated, and recorded in the public ledger without intervention from a third party or a central authority.

While CBDCs leverage blockchain technology, they are completely centralized. With the assistance of other outside organizations, a central bank supervises and facilitates the transactions. Fundamentally, cryptocurrencies are private forms of money, but CBDCs are supported by the government. CBDC is therefore promoted as a secure mode of payment. 

Recent Development : launch of e-rupee by RBI

A new turning point for digital payments was reached in 2022 with the Reserve Bank of India's (RBI) introduction of the e-rupee. This central bank digital currency (CBDC), which is enabled by blockchain technology and is an electronic representation of the rupee, maybe more secure and supported by the government as an alternative to private digital currencies.

The launching of e-rupee to be accepted by the masses would require focus/work on these four major areas i.e. regulatory framework, scalability, operational standardization, and technology consideration.

Examining the current challenges faced by the regulatory framework

CBDCs' lack of legal clarity exposes central banks and the banking industry as a whole to legal, financial, and reputational problems. The most obvious legal necessity identified by the central bank (the RBI) is the central bank's ability to create a digital counterpart of fiat money, as well as other concurrent modifications to central bank and monetary legislation required to support CBDCs:

The introduction of CBDC by the RBI: the Reserve Bank of India Act, 1934 was modified by the Finance Act, 2022, expanding the definition of "bank note" to include notes produced in digital form. In conjunction with Section 22 of the RBI Act, this change gives RBI the authority to print digital bank notes. Additionally, a new section 22A is being considered for the RBI Act, which would render some laws applicable to physical bank notes inapplicable to digital banknotes. Although these revisions provide RBI the authority to issue a CBDC, issuance of a CBDC must nevertheless take into account other legal matters.

The following difficulties in the legal framework/ shortcoming of legislations which are to be modified as follows:

  1. The concept paper indicates that "banks and any other service providers" will take part in the two-tier CBDC architecture. To determine if existing RBI-regulated firms (such payment system operators) will be included or whether emerging participants may be included, clarity about the definition of service providers is required. It will be necessary to consider the ramifications under the Banking Regulation Act of 1949 and the Payment and Settlement Systems Act of 2007 depending on the financial sector intermediaries that take part in the CBDC infrastructure.

  2. Legal clarity on the regulation of such companies must be defined if the entry of fresh players is permitted to offer technical or other value-added services. For the purpose of overseeing CBDC intermediaries, a different governance system is required. The framework may include requirements for eligibility and licensing, cost and fee structures, disclosure standards, wallet specifications, onboarding standards, interoperability standards, liability in the event of unauthorized transactions, fraud, security and privacy breaches, dispute resolution mechanisms, data governance standards, risk mitigation techniques, and outsourcing policies.

  3. It will be necessary to look at the structure of the Know-Your-Customer (KYC) framework and how the Prevention of Money Laundering Act, 2002 (PMLA) is used. Wallets may be allowed to have particular characteristics, such as caps on funds and restrictions as well as the type of transactions, depending on the degree of KYC. CBDC Intermediaries must be subject to the PMLA Act's rules for "specified transactions".

  4. The CBDC infrastructure will provide CBDC intermediaries access to a lot of private data. To understand who can collect, handle, and keep data, the objectives for which it will be used, and whether or not the data can be shared with other entities, including RBI and government entities for law enforcement, legal concerns pertaining to privacy and data governance must be considered. Furthermore, it could be necessary to look at the cross-border consequences of exchanging data outside of India.

  5. The launch of digital currency would also require modification to the definition of sections 2(m), 2(h), and 2(q) of the Foreign Exchange Management Act, 1999 as the word digital currency has not been specified. Further, this would be a major obstruction for cross border transactions where e-rupee within India is accepted as a form of virtual money and not otherwise.


The introduction of Central Bank Digital Currency (CBDC) by RBI in 15 cities across India is an example of the swift adoption of digital currency. However, for the e-rupee to be widely accepted and unlock gains the four major aspects are to be determined i.e. regulatory framework, scalability, operational standardization, and technology consideration.

While concept note issued by RBI has highlighted the nature of the e-rupee, regulatory framework modification and its subsequent effect on financial stability, monetary policy, and privacy issues. An in-depth study into implications on the following has to be analyzed that is anonymity of monetary transaction affected; consensus on whether CBDC should pay interest given that it would influence saving habits and cause a decline in the number of public deposits held by commercial banks; and It will have an impact on both banks' book entries since the CBDC will be a liability on the balance sheet of the RBI rather than the commercial banks because it is anticipated that a sizable portion of the existing currency would be converted to CBDCs.

Also read: Crypto ID Project: Worldcoin, Hits 2M User Milestone

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