What is Digital Rupee and how does it work?

In an increasingly digital world, the introduction of the Digital Rupee marks a significant shift in the way we think about money and transactions. This new form of currency provides an alternative to physical currency, offering a host of advantages, as well as a few challenges.

What is Digital Rupee?

The Digital Rupee, also known as the e-Rupee, is a digital version of the Indian Rupee issued by the Reserve Bank of India (RBI). Unlike cryptocurrencies, which are decentralised, the Digital Rupee is a central bank digital currency (CBDC) that operates under the jurisdiction of the RBI.

This means it has the same value as physical cash and is recognised as legal tender by the government. The Digital Rupee aims to bring efficiency, transparency and security to the financial system, providing a modern alternative to traditional cash and electronic transactions.

How does Digital Rupee work?

The Digital Rupee functions just like cash but in a digital format. Think of it as electronic money stored in your digital wallet. You can send, receive and store it, all while bypassing the need for physical cash or intermediary banks.

Transactions are recorded on a secure digital ledger maintained by the RBI, ensuring every transaction is transparent, traceable and immune to counterfeiting.

Issuing Digital Rupee

The RBI is responsible for issuing the Digital Rupee. The process involves creating a digital equivalent of the physical currency, which is then distributed to banks and financial institutions. These institutions, in turn, distribute the Digital Rupee to the public through digital wallets and other electronic channels.

Acquiring Digital Rupee

Acquiring the Digital Rupee is straightforward. You can use existing digital wallets to purchase Digital Rupee from authorised banks.

Using Digital Rupee

Using the Digital Rupee is incredibly practical and user-friendly. Here’s how you can include it in your daily life:

Shopping: Make payments for goods and services quickly and securely without the need for physical cash.
Transfers: Instantly send money to friends and family, whether they're next door or across the country.
Savings: Store your Digital Rupee in a digital wallet, keeping your funds safe and easily accessible.

How to load Digital Rupee?

1. Download the Axis Bank Digital Rupee app and complete the registration process.
2. Choose the "load" option on the home page and enter the desired amount or select from available token denominations.
3. You can load funds from a linked Savings Account or another UPI account.
4. Follow the onscreen instructions to complete the load and finalise the process.

How to redeem Digital Rupee

1. Login to the Axis Mobile Digital Rupee app and select the "redeem" option on the home page.
2. Choose tokens to redeem and select the denominations. Or choose "redeem all" to unload all available tokens in your wallet.
3. Choose the linked Savings Account that needs to be credited and enter your wallet PIN.
4. Complete the redemption process. The Digital Rupee tokens will be unloaded from your wallet, and the corresponding amount will be credited to your linked Savings Account.

Features of Digital Rupee

RBI regulated: The Digital Rupee is issued and regulated by the Reserve Bank of India, ensuring its stability and reliability.
Real-time payments: It facilitates instant payments to individuals or merchants, eliminating the delays often associated with traditional banking.
Quick payments: It enables fast transactions through QR codes or mobile numbers, simplifying the payment process.
Secure transactions: It provides a secure method for receiving and collecting Digital Rupee, reducing the risk of fraud.
Auto-load feature: It seamlessly integrates with automatic load options, ensuring your digital wallet is always funded.

Advantages of Digital Rupee

Enhanced efficiency: Transactions are completed swiftly and efficiently, saving time.
Reduced risk of theft and loss: Digital Rupee is not susceptible to physical theft or loss, providing a safer alternative to cash.
Increased financial inclusion: It broadens access to financial services, particularly for individuals in remote or underserved areas.
Cost reduction: It lowers the costs associated with printing, distributing and managing physical currency.
Improved monetary policy implementation: Digital Rupee offers the RBI greater control and precision in implementing monetary policies.
Environmental Benefits: It reduces the environmental impact linked to the production and transportation of physical cash.

Disadvantages of Digital Rupee

Digital access: You need to have access to digital devices and the internet, which can be a barrier for some populations.
Privacy concerns: Digital transactions are traceable, potentially raising privacy issues for users who prefer anonymous transactions.
Implementation costs: Initial setup and infrastructure development can be costly, both for the government and financial institutions.
Technological dependence: It relies heavily on technology, which can be problematic in areas with poor digital infrastructure or during technological failures.
User adaptation: It requires users to adapt to a new form of currency and transaction method, which may take time and effort to become widespread.

Also Read: What is digital payment? - Overview, methods & benefits

Conclusion

The Digital Rupee represents a significant step forward in the evolution of currency and digital transactions. By understanding what the Digital Rupee is and how it works, you can leverage its benefits for greater convenience, security and efficiency in your financial dealings. As this innovative currency continues to develop, it holds the promise of transforming the financial landscape, making transactions smoother and more accessible for everyone.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.