Central bank digital currency (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. In effect, the retail e-rupee will be an electronic version of cash, and will be primarily meant for retail transactions, potentially available for use by all — the private sector, non-financial consumers and businesses.

WHY E-RUPEE:

• The key motivations for exploring the issuance of CBDC include
  • Reduction in operational costs involved in physical cash management,
  • Fostering financial inclusion,
  • Bringing resilience, efficiency and innovation in the payments system.
• It will add efficiency to the settlement system and boost innovation in cross-border payments space.
• Introducing its own CBDC has been seen as a way to bridge the advantages and risks of digital currency.
  • Specially, concerns over money laundering, terror financing, tax evasion, etc. with private crypto currencies like Bitcoin, Ether, etc.
• Being interoperable with other payment systems, it will complement existing techniques like UPI, thus completing the mobile payments ecosystem.

However, the preference for cash (for small value transactions—of up to ₹500) represents a discomfort for digital modes of payment, and CBDC is unlikely to replace such cash usage. But the preference for cash for its anonymity can be redirected to acceptance of CBDC, as long as anonymity is assured.
The central bank views the use of the digital rupee as a step towards making the inter-bank market more efficient.