Digital Currency – RBI Digital e-Rupee Explained | All about e-Rupee (in Simple Language)

India has evolved so much as a country in terms of everything. We have witnessed India transform digitally in the past few years. And the speed at which it is developing is absolutely incredible. We can now say that India is on its way to become a fully digitalised nation. Indians dominate the market as Indians have downloaded more apps than any other country except China. Also Indians spend more time on social media than people from any other nation. To express this in numbers, it was found that Indians spend an average of 17 hours on a average every week than the social media users in China and the United States. The Government’s Jan Dhan Yojana has also turned out super beneficial as the amount of people having bank account got doubled. We now do everything online be it studying, shopping, paying money to merchants on everyday basis.

Now every person carries a wallet everyday. But we are closer to the time when we won’t even need a wallet anymore. Because the currency is now about to become digital. That means you will not need to carry money wherever you go because you will have your money digitally on your phone. Well you must be wondering how is this possible? Let me help you with understanding what is e currency or digital currency.

The entire digital currency concept is based on blockchain technology. So let’s first look into the blockchain technology and understand how it works.

What is Blockchain Technology?

Blockchain technology works on database mechanism which is super advanced that allows transparent information sharing within a business network. So basically to explain it further a blockchain database stores data in blocks. And the blocks are linked together in chains. The biggest perk is that the data stored is in a chronological order that is set chronologically. It is also consistent because you can not even delete, remove or even modify the chain. This can only be done with the consensus from the network. It is one of the most secure systems as it avoids unauthorized transaction entries. This is done by the in built system of the blockchain.

There is a strong possibility that digital currency will fully change the definition of money and what people think about money. Digital currency is basically the currency that is available in a digital or an electronic form. There are many countries that already function on digital currency. And now India is almost on the verge of launching its digital currency soon ! Now some people must be wondering what is the distinguishing factor between an electronic currency and digital currency. Let me clarify this for you. So the biggest distinguishing factor between an electronic currency an digital currency is that the digital currency can never be transformed or transferred into a physical form or basically a physical note. But on the other hand the electronic currency will be able to transform in to physical currency that is realistic physical notes. So imagine you have an electronic currency of Rs 500. So you will have one note of Rs five hundred electronically. Now you can make payments using this note electronically to the merchants that accept the electronic notes or if you are caught up in a situation where you are urgently in need of five hundred rupees in cash then you can turn this electronic note in to a physical note by going to the nearest ATM.

There are three main types of digital currency which are

1. Cryptocurrency.
2. Stablecoin.
3. Central Bank digital currency.

What is Cryptocurrency?

Cryptocurrency is basically a digitally form of payment method which is created using encryption algorithms. To use cryptocurrencies you need a cryptocurrency wallet. Now people wonder if cryptocurrency is real money or not ? The answer to this is yes. Cryptocurrency is real money. It is money is digital form. It is an asset created using cryptographic techniques that lets people do the basic stuff like buy, sell or trade them. People are also scared because some think that these digital currencies like the cryptocurrency are not secure. But no there is nothing to be scared of because these digital currencies are absolutely secure. For your better understanding, the best example is ‘Bitcoin’. Bitcoin is considered as one of the original cryptocurrencies. And bitcoin was created in the year 2009.

Now let me tell you the ways how you can cash out your cryptocurrency-

• Use and exchange form to sell your cryptocurrency.
• This can be done but using your broker to sell your cryptocurrencies.
• You then have to choose peer-to-peer trade.
• Now cash it out at a bitcoin ATM.
• Now you will have to trade one cryptocurrency for another cryptocurrency.
• Now finally you can cash it out.

Note – There is no limit on the amount of cryptocurrency you can sell on cash.

The next one is one of the most emerging and that is CBDC central bank digital currency.

What exactly is Central Bank Digital Currency CBDC?

Central bank digital currency is basically the currency issued by the central bank digitally. This digital currency is also looked by the particular country’s central bank. Now that we have looked at what bitcoin is and how it works you can think CBDC central bank digital currency as a bitcoin but that will be managed by the government of India. There are a lot of countries who are doing their research on CBDC including India. The implementation of CBDC central bank digital currency can be the biggest transformation for every country. India is trying its best to implement it as soon as possible and also seems to have firm plans about how to function it. So let us hope that this will be implemented as soon as possible. But as the law supports physical notes the law will also support digital currencies just like our usual notes.

Now to break it down to you it will function exactly as to how we use our normal money. So to understand this better let us consider a person A gives you Rs.100 as CBDC. It means that this digitally shared note is all yours just like receiving an actual hundred rupee note. So you can use this CBDC to buy anything you desire from any merchant who accepts the digital note. And it is also super flexible as you can withdraw your digital money and convert it into actual money whenever you want. So it is literally like having Rs. hundred in your wallet but just digital wallet. This CBDC a that is central digital currency will be a hundred percent legal as it will be introduced and overseen by the Central Bank itself. So there is no need to worry because it will be a hundred percent secure. Now the biggest difference between cryptocurrency and CBDC central bank digital currencies is that when you use your crypto currency for payments of anything as a mode of payment you are taxed with capital gain taxes whenever you buy or sell. But in case of CBDC central bank digital currency you will not have to pay extra tax you will just have to pay the regular sales tax so it is just like using regular physical money in form of notes.

How will the CBDC Work ?

How will the CBDC central bank digital currencies or E currencies work, are there any loopholes or any drawbacks ?

Many countries have absolutely concrete plans on implementing CBDC central bank digital currency but for now this is just an idea or just a concept that the world is still researching about. But no matter how beneficial it is to our economy we can not ignore the fact that there also might be a lot of loopholes. Now at this point we assume the fact that it will just be like the actual notes but in digital form. But since it will be entirely digital we will need internet for using CBDC central bank digital currency. There are many parts of India which does not have access to Internet. There also are people who still do not even use a smart phone. So what about them ? For CBDC we will need a strong Internet connection. So we first have to make sure that we have access to network in all parts of our country.

Now there is yet another problem. Even if local Wi-Fi’ s are set up it still will need electricity to function. And there are a lot of villages and even some areas in the city as well which do not have electricity twenty four seven. So there are a lot of things to be taken care of first. Now there is also a chance that the CBDC will not need Wi-Fi or internet. We are curious to know what happens next and how does the government make this happen. We can not ignore the fact that CBDC holds a lot of potential and power to transform the economy in the best possible way. They should also need to make this a very simple process to use. Because everybody has to understand this. So we expect this to be a very simple and easy process.

Also you will be able to switch your digital notes that is your CBDC central bank digital currency into physical notes. Your bank account will be linked. Now you can also use it even if you do not have a bank account. You will still be able to create a wallet.

• Once you login to your account you will be able to see a few options.
• The first option is a ‘Basic wallet’. This will not need a KYC.You can directly create a wallet just by signing up in a few steps and your wallet ID will be created. So still you will be able to buy and sell. There will be a limit to the amount of money you can have in your basic wallet.
• Now if you want to keep more money or exceed the limitations then you will have to go for the other option that is Aadhar KYC. Or if you already have a bank account you can link it to your wallet.
• After completing this process a wallet ID will be generated. You will be issued with digital notes. That is you will have Rs. 10, 20, 50, 100, 500 notes etc which will be similar to actual notes. You will also be able to view the denominations of the notes. For example if you have Rs 50 in total then you will be able to see that how many number of notes you have in different denominations.

For example you might have two twenty rupee notes and one ten rupee notes. You will also have coins in CBDC central bank digital notes. Even if your account is connected to your wallet the bank still will not have access to it. So the chances of getting interest in your CBDC central bank digital currency are less to negligible.

For now there are a few banks that the RBI has allowed to test for retail purposes those banks are

1. State bank of India
2. ICICI bank
3. Yes bank
4. IDFC first bank
5. Bank of Baroda
6. Union bank of India
7. Kotak Mahindra Bank
8. HDFC bank

The first four banks are allowed to test in the first trial phase, where as the banks number from five to eight above will be testing it in phase two. The major cities in which testing will be done are Mumbai, New Delhi, Bengaluru and Bhubaneshwar and later might be extended on to the cities like Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. We are expecting this to implement soon and the days are near when we will not need to carry an actual wallet.