eRupee use cases to go beyond UPI, cash

Mumbai: The eRupee, India’s central bank digital currency (CBDC), will have use cases beyond those being fulfilled by other digital payment modes like UPI. Bankers said that while UPI is growing, there are still features that are unique to cash that the eRupee will replicate.

Although the digital rupee will be transferred from user to shopkeeper using QR code, a key differentiator is that the eRupee will ensure anonymity. The RBI will not retain record of retail transactions until they cross a threshold. Currently, cash transactions above Rs 50,000 require PAN details, and the RBI is likely to use this as a threshold for anonymity. “It is not just because of unaccounted money that people prefer cash, and it is also an issue of the right to privacy,” a banker said.

The retail eRupee is token-based, meaning that the transfer will take place using a public key similar to a UPI address to identify the user and a private key that enables the holder to transfer the eRupee. This is similar to how cryptocurrencies are transferred. Like banknotes, eRupee will be released in different denominations and stored in electronic wallets issued by the participating banks. Unlike UPI, the eRupees will not be part of bank deposits and will not earn interest.

While initially the eRupee will require internet connectivity to download the wallet and purchase digital currency using bank deposits, the CBDC can operate offline as well.

According to bankers, the primary use case of CBDC would be realised when other countries also start issuing CBDCs. This will enable to travelers to exchange eRupees for CBDC of other countries for zero cost.

According to the World Bank, the cost of sending remittance has been around 6%. Use of CBDC would result in huge savings for overseas workers and those making cross-border investments.

The eRupee will also help in the internationalisation of the rupee as the RBI won’t have to deal with the logistics of printing and distribution of banknotes to countries that agree to use the rupee.

SBI, ICICI Bank, IDFC First Bank and Yes Bank have been chosen for the first phase of the pilot project. IDFC First Bank launched the pilot on Thursday at a petrol pump where customers of the bank can use the eRupees they buy from the bank to pay for fuel by scanning a QR code.

In the first phase, the eRupee pilot will be available by invitation to those in Mumbai, New Delhi, Bengaluru and Bhubhaneshwar.

Wholesale CBDC may help to overcome settlement challenges

From November 1, nine banks have been participating in a pilot project for wholesale eRupees. In the pilot, the wholesale CBDC was used for the limited purpose of trading in government securities.

On Wednesday, the CBDC segment saw 28 trades for Rs 295 crore. A key difference between trades using CBDC and regular G-sec trades is that they are settled on the same day. This eliminates the settlement risk and could provide a workaround for the stalemate between the RBI and the European Securities Market Authority over the derecognition of the Clearing Corporation of India. The CBDC would enable the trades without a central clearing agency.