e-Rupee: What is a Digital Rupee and How is it Different from UPI, NEFT & RTGS?

The digital rupee (e-Rupee) or Central Bank Digital Currency is the Reserve Bank of India’s version of cryptocurrency. It is an electronic form of sovereign currency and it will be exchangeable at par with existing currencies. The digital rupee is expected to facilitate the ease of use of online transactions. It is being touted as safer than private cryptocurrencies as digital rupees do not pose a threat to the stability of the financial system of the country.

On the other hand, Unified Payments Interface (UPI), National Electronic Funds Transfer (NEFT), and Real Time Gross Settlement (RTGS) are different methods of transferring funds or payment mediums. All of these methods of money transferring are also completely backed by physical currency whereas the digital rupee is a legal tender that is not supported by a physical currency.

What is a digital rupee?

Central Bank Digital Currency is a form of digital currency or currency that is available entirely in electronic form. It is exchanged exclusively through virtual means and does not leave a computer network. Transactions through UPI, RTGS, and NEFT are done through banks, therefore, they take a lot of time to process. But that is not the case with the digital rupee.

Also, digital currencies such as CBCD don’t have to be manufactured at manufacturing facilities. They are immune to physical defects and soiling. It is also believed that CBCD can make government payments such as food stamps, child benefits, and tax refunds more well organized as the government wouldn’t have to mail them a check.

In an announcement made by RBI, RBI clarified that CBDC can’t be compared to cryptocurrencies “Unlike cryptocurrencies, a CBDC isn’t a commodity or claims on commodities or digital assets. Cryptocurrencies have no issuer. They are not money (certainly not currency) as the word has come to be understood historically.” In simpler terms, CBDC is a digital avatar of paper currency that is issued by RBI and is exchangeable with cash.

RBI Governor Shaktikanta Das adds, “There is no difference between paper currency and digital currency…The income tax department has got certain limits for cash payments like beyond a certain limit you have to give PAN number; the same rules will apply in the case of CBDC because both are currencies.” SBI has allowed Rs 1 lakh holding limit for digital rupee users’ wallets. Users can make up to 20 inwards and outward payments and can load and unload up to Rs 25,000 per day.

Difference between digital rupee and UPI, NEFT, and RTGS

The digital rupee is a currency in digital form that enables digital transactions. NEFT, UPI, and RTGs are modes of transfer where transactions can happen digitally. Usually, the bank acts as an intermediary in UPI, NEFT, and RTGS transactions. However, in the case of CBDC, a person is able to withdraw virtual money and retain it in their mobile wallet. The bank doesn’t act as a middleman in the transactions.

Therefore, in the case of the digital rupee, the transactions are settled directly and instantly. According to experts, transactions via digital rupees are more anonymous than UPI, NEFT, or RTGS transactions. Karan Mehta, founder & CTO of RING, a fintech app, says, “In the case of digital rupee, even though the transactions are recorded in the centralise ledger, it is fairly anonymous as the owner of the wallets are not known to the government or intermediaries in the ecosystem.”