Digital rupee or Central Bank Digital Currency (CBDC) is a type of digital money that is controlled by a central bank. A CBDC could be used in a similar way to cash, but would be electronically stored in a digital wallet and could be used for a wider range of purposes. It is a legal tender, so has to be accepted by everyone in India as medium of exchange. CBDCs are often discussed in the context of “the future of money”, a digital revolution characterized by innovation in financial services and products, technological transformation, and a shift in the way people think about money.

The Reserve Bank of India (RBI) introduced ‘central bank digital currency’ (CBDC) on a pilot basis. The RBI had said earlier: “CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.”

The digital money will reside in user’s e-wallet that needs to be registered. These e-wallets will be credited with tokens offered by participating banks. Wallets will be stored on mobile drives and can make or receive payments through QR codes or other wallets. Digital currency will not earn any interest as it is just like cash. Users can convert digital rupee into cash and vice versa.

RBI has identified nine banks including State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank and HSBC for the participation in the pilot. RBI has issued two version of e-rupee – Retail (CBDC-R) and Wholesale (CBDC-W). Retail is for general public and private sector, and wholesale version is for selected financial institutions. CBDC is aimed to complement, not replace the current forms of money. It will provide an additional payment method to users. The central bank’s plans for a currency in digital form have come through its firm opposition of crypto currencies. But, the potential impact of digital currency is still unclear.