What is Digital Rupee (e-Rupee) : How it Differs from UPI and How it Works

Rupee or e-rupee is a type of money that exists solely in electronic form, stays within a computer network, and is only accessible online. It comes in three main forms: cryptocurrencies, stable coins, and central bank digital currency (CBDC), and it is a big part of many countries’ financial systems.

The most well-known type of digital currency is cryptocurrency, which is built on the blockchain, a distributed ledger technology. According to CoinMarketCap, there are more than 21,000 cryptocurrencies in use today.

CBDC, also known as e₹, is a digital currency note that is issued by a central bank. To use CBDC, customers need to have an e₹ wallet, which is a cash-loadable bank-issued wallet.

A virtual currency known as the Digital Rupee, which serves the same purposes as paper money, is issued by the Reserve Bank of India (RBI). It is a digital currency that is centralized and controlled by the RBI, much like traditional currencies, providing stability and trust.

Digital Rupee Launch

On December 1, 2022, the Reserve Bank of India (RBI) introduced the Digital Rupee in an attempt to broaden financial inclusion in the country. By providing quicker and more secure digital payment options, this central bank digital currency (CBDC) seeks to increase transaction efficiency and increase access to official financial services. The introduction of the Digital Rupee promotes a digital economy and lessens reliance on hard currency in line with India’s technological achievements. It also makes it possible for regulators to monitor financial transactions more closely, preventing any possible illegal activity.

The Digital Rupee is split into two sectors at the moment: retail (e₹-R) for consumer transactions and wholesale (e₹-W) for interbank payments. The latter is still in its experimental phase. The e₹-R pilot, which began in five cities with a small user base, uses blockchain technology, which may have benefits including increased efficiency, transparency, and real-time settlements.

How Digital Rupee Works

As a form of digital money, the digital Rupee, or e-Rupee, is issued and managed by the Reserve Bank of India (RBI). Blockchain, or distributed ledger technology, ensures transparent and secure transactions.

Each token is associated with a token holder, and the e-rupee functions as a token. The token must be acknowledged as payment when it is offered since it belongs to the person who possesses it. This means that no one may reject your e-rupees when they are offered as a substitute for cash.

Because your e-rupee tokens are stored in digital wallets that banks offer, accessing them from any device is simple. Users can utilize digital wallets and scan QR codes to facilitate transactions. Retailers would have distinct QR codes as part of the trial project, and customers may interact with them via digital wallets.

The digital rupee makes it unnecessary to carry your wallet with you at all times. All you have to do is use your phone to scan the QR code to pay for your items. It also works with other bank accounts, which makes account transfers easier and especially helpful if you need to set spending limits at the end of the month.

Cryptocurrency vs e-rupee. Are they same?

Think of the e-rupee as a larger, rent-free version of your regular rupee bill on your phone! Unlike other mysterious cryptocurrencies, the e-rupee is backed by the Indian government, making it incredibly safe and reliable. It also has widely recognized rupee values, so you won’t need to become fluent in complex crypto terminology. Though it is still in its early stages, imagine being able to make safe, fast, and internet-free payments with digital magic!

Digital Rupee vs. UPI

One notable advancement in digital currency is the e-Rupee, or e₹. Compared to UPI and other financial transfer services, which are basically utilized as payment methods, e-Rupee offers greater flexibility. It is a “unit of account” and a means of payment, much like real money, and it also acts as a “store of value.” 

This differentiation is significant as it demonstrates that e-Rupee may be utilized for purposes beyond just transactions. It serves as a claim on the Reserve Bank’s balance sheet, increasing the reliability and validity of its value.

Third parties are one of the main ways that e-Rupee and UPI vary from one other. Most UPI transactions include a bank acting as a middleman. But since the introduction of the e-Rupee, this dynamic has changed dramatically. E-Rupee transactions are just as easy to use as cash transactions. There are just two parties involved, just like when you pay cash for goods: you and the shop. 

Similar to this, e-Rupee eliminates the middle bank by sending money straight from your digital wallet to the recipient’s wallet. With this update, making payments is now just as easy and smooth when using digital money instead of real currency. Its foundation is the notion of a conventional financial transaction.

Security and Privacy

e-Rupee and UPI both value security and privacy, despite the fact that they approach them in different ways. UPI relies on multi-factor authentication and bank intermediaries to ensure secure transactions. On the other hand, e-Rupee prioritizes encryption and offline storage. Regarding confidentiality, there are other variations: 

While e-Rupee offers restricted transaction monitoring for anonymity, UPI provides banks with transaction data for regulatory compliance. Whether you go for the well-known, bank-backed security of UPI or the cash-like anonymity of e-Rupee depends on your preferences.

Priorities one and two for both e-Rupee and Digital Rupee are security and privacy. These virtual currencies employ robust authentication and encryption protocols to ensure secure transactions and protect user data. 

Unlike UPI, which channels transactions via banks, Digital Rupee and e-Rupee transactions enable direct wallet-to-wallet transfers, which may reduce the likelihood of an intermediary breach. However, the fact that both systems must deal with problems like fraud, identity theft, and data privacy emphasizes the need for constant upkeep and attention to the security architecture.

How to Buy Digital Rupee

Unfortunately, the ability to directly purchase Digital Rupee is now confined to a test phase that is applicable only to a specific group of places and individuals chosen by participating banks, including IDFC First Bank, Yes Bank, ICICI Bank, and State Bank of India. 

If you are selected, you will receive an invitation to download the exclusive e-Rupee app. After downloading, confirm your account and link it to your bank. Next, load the desired amount into your e-Rupee wallet using UPI or the bank account you have linked. Keep in mind that the trial program is now over, and keep an eye out for any updates from the RBI on expanded availability.

If you prefer to pay using a different method for your Digital Rupee purchase, you can follow these steps. First, confirm that transactions in Digital Rupees may be processed by your digital wallet. Next, create an account on a reliable exchange or marketplace where Digital Rupees may be traded. Use one of the approved payment methods to fund your account. 

Once your account has been funded, locate the Digital Rupee trading pair, such as e-Rupee or INR/Digital Rupee, and make a purchase order. Once you’ve decided how much Digital Rupee you want to purchase, finish the transaction. Your Digital Rupee will be credited to your wallet after the order has been finalized.

Digital Rupee Price

Digital Rupee is now under a test phase with limited access; its cost is not disclosed. Many factors, like as market demand, governmental regulations, technological developments, and the overall adoption of digital currencies, may influence its price as it becomes more widely accessible. News and events in the banking sector may also have an effect on its price, particularly if they include participating banks like State Bank of India, Yes Bank, ICICI Bank, and IDFC First Bank.

As of today, February 1st, 2025, the Digital Rupee (e₹) has no fixed price because it is directly related at a 1:1 ratio to the Indian Rupee (₹). This suggests that their value is equivalent, which eliminates the need for impartial price monitoring. As a result, the same variables that impact the value of the conventional rupee will also have an impact on e₹. These variables include global currency volatility, inflation, interest rates, and economic growth. It’s important to remember that e₳ is still in its testing phase and that its features and potential price dynamics might alter as it gets closer to a wider deployment.

SBI and Digital Rupee

The Digital Rupee (e₹) pilot initiative primarily involves SBI, India’s largest bank. Customers can load, store, and spend e-money using the “e-Rupee by SBI” e-wallet app provided by SBI. Through active participation in the RBI’s private user group trials, SBI is assisting a limited number of merchants in partner cities to conduct e-commerce transactions. While specific partnerships are undisclosed, SBI’s strong network and extensive infrastructure are expected to significantly contribute to the growth of e-commerce and its potential for national development.

Conclusion

Central bank digital currencies (CBDCs), like the Digital Rupee, provide a number of benefits over traditional currencies. They encourage financial inclusion, reduce transaction costs and speeds, and boost security in general. IDFC FIRST Bank is leading the way in the digital currency revolution, ensuring that its customers may easily access these innovative financial products.

With its ability to lower transaction costs, promote financial inclusion, and streamline financial procedures, the Digital Rupee has the potential to fundamentally alter the Indian financial sector. As India’s digital currency ecosystem grows, the Digital Rupee might have a big impact on how financial services and transactions are carried out there in the future.

The RBI introduced the Digital Rupee in an effort to address a number of issues related to international transactions and hard money. Fast cross-border money transfers made possible by digital currencies will increase bank cash management’s effectiveness. Furthermore, by eliminating the need for actual cash, the Digital Rupee can minimize expenses associated with printing, shipping, and currency storage. This action is consistent with the government’s goal of establishing a paperless society and establishes a standard for other nations to consider putting similar digital currency programs into place.