e-Rupee is an electronic form of sovereign currency while UPI applications such as Google Pay, PhonePe, NEFT, and RTGS are different methods of transferring funds or payment mediums.
The Reserve Bank of India (RBI) recently launched the pilot for its digital rupee — India’s very own digital currency. A central bank digital currency (CBDC) is a legal tender issued by a central bank in digital form. It is the same as a fiat currency and it is exchangeable one-to-one with government-issued money. Simply put, the digital rupee is the same as a banknote or coin that we use daily, only it is in a digital form.
How is the RBI’s retail digital rupee different from Unified Payments Interface (UPI), National Electronic Funds Transfer (NEFT), and Real Time Gross Settlement (RTGS)? Let’s find out.
Understanding digital rupee
The retail digital rupee is a digital token issued by the Reserve Bank of India (RBI). The central bank has identified eight banks for the phase-wise pilot launch of the retail digital rupee. Four banks including State Bank of India (SBI), ICICI Bank, YES Bank, and IDFC First Bank are taking part in the first phase of the pilot programme while Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank will join the pilot in the second phase. It has been issued in the same denominations that paper currency and coins currently in circulation.
At present, customers will be able to transact using the digital rupee through a digital wallet offered by the participating banks in the pilot programme. The digital wallet can be saved on an Android smartphone. Currently, customers and merchants in closed user groups (CUG) in select locations in Mumbai, New Delhi, Bengaluru, and Bhubaneswar can use retail e-Rupee via the e-wallets of the above-mentioned four banks taking part in the launch, according RBI press release. Users can link their wallet to their bank accounts and load them and use digital money for individual payments or at the merchant shops. To send or receive digital money, a wallet is a must.
Differences between e-Rupee and UPI, RTGS, and other payment options
1) e-Rupee is legal tender, not a payment medium
e-Rupee is an electronic form of sovereign currency while UPI applications such as Google Pay, PhonePe, NEFT, and RTGS are different methods of transferring funds or payment mediums. The main difference is that UPI transactions are completely backed by physical currency and the digital rupee is a legal tender not supported by a physical currency.
2) Digital rupee is not limited to just currency
It must be mentioned that the usage of the e-Rupee is not limited to payments as it is a type of currency. The digital rupee also serves the purpose of being a ‘unit of account’ and more importantly, a ‘store of value’.
The key difference between digital rupee and UPI is that digital rupee is a store of value like currency and UPI is just an overlay infrastructure on top of any form of store of value like bank accounts (which have normal currency), prepaid instruments, credit cards, etc. UPI can be an overlay on any store of value. The e-Rupee is a store of value that can be transferred digitally instantly with finality of settlement.
e-Rupee can be issued and used for multiple use cases beyond traditional payment transactions going forward like embedded or ecosystem finance, instant lending, trade finance, etc. It has the potential to be widely accepted and replace physical currency with digital money and use it for various transactions fulfillment.
3) No intermediation of banks
Digital transactions in UPI or NEFT or RTGS must go through a bank while in the case of the e-Rupee, the money gets transferred from one wallet to another.
Clarifying the difference between the digital rupee and UPI, RBI Governor Shaktikanta Das had said during a press conference on December 7, 2022, “Any UPI transaction involves intermediation of the bank… In CBDC, just as the paper currency you go to a bank, draw currency and keep it in your purse, you go to a shop and pay from your wallet… similarly, here also you can draw digital currency and keep it in your wallet which will be your in mobile phone… and when you go and make a payment in a shop or to another individual, it will move from your wallet to his wallet… there is no routing or intermediation of the bank.”
4) Anonymity a big factor
The transactions via digital rupee are more anonymous than the current digital transactions including UPI, NEFT, RTGS, mentioned experts. “The fundamental feature of cash is anonymity. So for anonymity purposes currency can be used. How anonymity will be ensured in the case of the digital rupee can have various suggestions… we are firstly looking at largely the technological solutions. It is also possible to get a legal provision to ensure anonymity,” RBI deputy governor T Rabi Sankar said earlier.
In the case of the digital rupee, even though the transactions are recorded in the centralised ledger, it is fairly anonymous as the owner of the wallets are not known to the government or intermediaries in the ecosystem.
In the case of UPI or NEFT or RTGS, the transaction happens between the two bank accounts, and it can be easily tracked.
5) Will require PAN for digital rupee transactions after a certain limit
At present, a person making a cash transaction above a certain threshold needs to submit his or her PAN. The same rule will apply to the digital rupee. There is no difference between paper currency and digital currency…The income tax department has got certain limits for cash payments like beyond a certain limit you have to give PAN number; the same rules will apply in the case of CBDC because both are currencies.
For digital rupee users, SBI has allowed Rs 1 lakh holding limit for the wallet. Users can load or unload up to Rs 25,000 per day, as per the website. Up to 20 transfers including inward and outward payments are allowed in a day. Users can pay or collect up to Rs 10,000, according to the bank’s website. At present, the upper limit per UPI transaction is Rs 2 lakh. However, the upper limit may vary from one bank to another.
