Mains Marathon

Approach:

• Introduction: Start your answer with an introduction to E-Rupee and its features.
• Body: Discuss the potential benefits of E-rupee along with potential risks associated to it.
• Conclusion: Conclude with a way forward approach.

Answer:

E-rupee is the digital version of the Rupee, issued by the Reserve Bank of India (RBI) as a central bank digital currency (CBDC). It is a legal tender and same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different. The RBI has launched pilots of E-rupee in both wholesale and retail segments, with use cases ranging from settlement of government securities transactions to person-to-person and person-to-merchant payments.

Some of the potential benefits of introducing E-rupee as a CBDC in India are:

• Enhance financial inclusion by providing access to digital payments to the unbanked and underbanked population.
• Reduce the cost and risk of currency management, such as printing, storage, transportation and security.
• Improve the efficiency and transparency of the payment system by enabling faster, cheaper and safer transactions.
• Foster innovation and competition in the digital economy by providing a platform for new products and services.
• Support the monetary policy objectives of the RBI by providing a direct channel for transmitting policy signals and influencing money supply.
• Reduce the need of having a bank account as holders need not have a bank account for keeping e Rupee.

Some of the potential risks or challenges of introducing E-rupee as a CBDC in India are:

• Poses a threat to the stability and profitability of the banking system by reducing the demand for bank deposits and intermediation services.
• Exposes the RBI to operational and cyber risks, such as hacking, fraud, theft, counterfeiting and technical glitches.
• Raises legal and regulatory issues, such as defining the rights and obligations of the users, issuers and intermediaries of E-rupee.
• Has implications for privacy and data protection, such as ensuring the anonymity and confidentiality of E-rupee transactions.
• Face adoption and acceptance barriers, such as lack of awareness, trust, infrastructure and interoperability among the potential users of E-rupee.

E-rupee is a promising initiative by the RBI to introduce a CBDC in India that can offer several advantages for the economy and society. However, it also entails various challenges and risks that need to be carefully addressed and mitigated. The success of E-rupee will depend on how well it balances the trade-offs between efficiency, security, privacy and inclusion, and how well it adapts to the evolving needs and preferences of the users.