India Introduces Digital Rupee: What Are Benefits And Risks Of e₹ Cryptocurrency

India Introduces Digital Rupee: What Are Benefits And Risks Of e₹

India has launched a pilot program for its Central Bank Digital Currency (CBDC). Also called e₹, some of the major Indian banks have started transacting using the purely digital form of fiat or reserve-backed Indian currency. However, the e₹ could also be gradually introduced into the mainstream economy of the country, for daily transactions. Reserve Bank of India (RBI) Governor Shaktikanta Das confirmed the first day of the trial launch was a "landmark achievement". Let us understand how the Digital Rupee differs from regular electronic payments, its benefits, and more importantly, whether is it different from the prevalent cryptocurrencies.


Major Indian Banks Participate In e₹ Pilot Program

The Reserve Bank of India (RBI) launched the first pilot project for CBDC or eRupee this week. Nine Indian banks, including SBI, Bank of Baroda, HDFC Bank, Yes Bank, Kotak Mahindra Bank, and ICICI Bank, are the initial participants. These banks successfully used the Digital Rupee to settle secondary market transactions in government securities. Speaking about the successful launch, the RBI governor said:

"Yesterday, we launched the trial of the Central Bank Digital Currency (CBDC) project... It'll be a landmark achievement as far as the functioning of the entire economy is concerned. Reserve Bank is among the very few central banks in the world which have taken this initiative"

It is important to note the CBDC pilot program will initially be limited to high-value and bank-to-bank transactions. Specifically speaking, the e₹ is currently available in the "Digital Rupee - Wholesale" segment only. However, given the very nature of the Digital Rupee and the backend on which the e₹ rests, it is quite possible that the Indian government could introduce the same into mainstream and everyday transactions.

Is India's e₹ a Cryptocurrency And Will It Be Decentralized?

India's prevalent banking system and its financial ecosystem rely on the traditional monetary system, which is a common practice around the world. Indian businesses, banks, and the common citizenry rely on currency issued by the RBI for all types of monetary transactions. In other words, India's financial system is issued, assured, and backed by the country's top banking authority, which is the RBI.


Cryptocurrencies, by their very nature and origin, are opposite to the prevalent Indian Rupee. Nearly all types of cryptocurrencies are based on decentralized ledgers. In other words, they do not have any central or singular governing authority.

One of the reasons cryptocurrencies originated was to allow people and their monetary transactions to be free from government control. But government-issued digital currencies are centralized. The newly introduced e₹ relies on the RBI. It won't have a decentralized ledger.

Two primary reasons the Indian government and the RBI introduced e₹ were to cut down the time involved in settling transactions and minimize the resources involved in the process. India's CBDC or e₹ will ensure transactions take place between banks, and hence, there won't be intermediaries.

The e₹ is a form of cryptocurrency and is currently limited to banks. As such, it is centralized. Transactions executed using e₹ will be recorded and can be easily tracked and investigated. If or when RBI offers e₹ for common transactions between people and businesses it won't be similar to prevalent cryptocurrency transactions, which tend to be anonymous, and mostly free from government control and intervention.

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