Since the Reserve Bank of India launched its own central bank digital currency, or CBDC, or e-rupee, for retail and wholesale transactions, there have been several doubts about how e-rupee and Unified Payments Interface UPI are different from each other. Indicting the key differences between the CBDC and the UPI, RBI governor Shaktikanta Das said that e-rupee transactions will not have any intermediary unlike UPI transactions, which is the prime difference.
In the recent times, UPI applications have become one of the preferred payment modes in the country. The e-rupee has become the center of the town after RBI launched CBDC-R and CBDC-W in a gap of just one month.
CBDC is a legal tender issued by a central bank in a digital form, as per RBI's definition. It is akin to a paper currency, but it takes a different form, exchangeable at par with the existing currency and will be accepted as a medium of payment, legal tender and a safe store of value.
In layman s language, UPI is just an interface used for making monetary transactions, where the transaction happens between two bank accounts or account to the digital wallet, or digital wallet to account. On the other hand, the digital rupee is just another form of currency that is akin to the fiat currency.
Indicted by the difference, RBI Governor Das said that any UPI transaction involves the intermediation of the bank. When I use a UPI app, my bank account gets debited and money is transferred to the recipient's bank. You can draw 1,000 from the bank, keep it in your wallet and spend it at a shop in the paper currency. For e-rupees, Das said: Similarly, in CBDC you will draw the digital currency and keep it in your wallet in your mobile. When you make a payment at a shop or other individual, it will move from your wallet to your wallet. There is no routing or intermediation of the bank. CBDC can allow the movement of money directly between two private entities, individuals or businesses, similar to cash, according to Deputy Governor T Rabi Sankar. The movement is only between two bank accounts in the UPI.
Its use cases of CBDC can be many more. Money can do all those functions, and it can do all those functions. It all depends on how much our startup and fintech ecosystem innovates and what kind of payment channels it opens up. Sankar said that they will set up the base system and then the private sector can innovate.
Users can purchase digital currency from RBI-approved banks, as per RBI guidelines. In the first phase, RBI has partnered with four banks - IDFC First Bank, ICICI Bank, Yes Bank and State Bank of India.
Users will need to go to the official app or website of the four designated banks to buy e-rupee or e from issuing banks, even if they don't have a bank account with the lender. While it would be digital in nature, the e-rupee would offer features of physical cash.
The e-rupee would be credited to your wallet, unlike physical cash which users can withdraw from bank accounts or ATMs. It can be used for digital transactions from there.