Digital Rupee (e-Rupee) vs Unified Payment Interface (UPI) : What differences did Indian Central Bank (RBI) tell to Indian Citizens ?

As per RBI’s definition, CBDC or e-Rupee  is the legal tender issued by a central bank in a digital form. It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and shall be accepted as a medium of payment.

Ever since the Reserve Bank of India (RBI) launched its own central bank digital currency, or CBDC, or e-rupee, both for retail and wholesale transactions, there have been several doubts around how e-rupee and Unified Payments Interface (UPI) are different from each other. While clarifying the key differences between the CBDC and UPI, RBI governor Shaktikanta Das on December 7 said e-rupee transactions will not have any intermediary, unlike UPI transactions, which is the prime difference.

UPI applications have emerged as one of the most preferred payment modes in the country in the recent times. While on the other hand, the e-rupee has become the town buzz after RBI launched CBDC-R and CBDC-W in a gap of just one month. 

CBDC vs UPI: RBI Governor’s version 

As per RBI’s definition, CBDC is the legal tender issued by a central bank in a digital form. It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and shall 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. Digital Rupee, on the other hand, is just another form of currency akin to fiat currency. 

Explaining the difference, RBI Governor Das said: "Any UPI transaction involves the intermediation of the bank. So, when I use a UPI app, my bank account gets debited and money gets transferred to the recipient's bank. In paper currency, you can draw Rs 1,000 from the bank, keep it in your wallet and spend it at a shop."  For e-rupee, 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 to another individual, it will move from your wallet to their wallet. There is no routing or intermediation of the bank.” 

Deputy governor T Rabi Sankar further added that CBDC can enable the movement of money directly between two private entities, individuals or businesses, similar to cash. While in UPI, the movement is only between two bank accounts. "Its (CBDC's) use cases can be many more. Money has various functions, 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. We will set up the base system and then the private sector can innovate," Sankar said.

How to get Digital Rupee? 

As per RBI guidelines, users can purchase digital currencies from RBI-approved banks. In the first phase, RBI has partnered with four banks -- State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank. Users will need to head to the official app or website of any of the four designated banks, where they can buy e-rupee or e₹ from issuing banks even if they do not have a bank account with the lender. While it would be digital in nature, the e-rupee would offer features of physical cash. But unlike physical cash which users can withdraw from bank accounts or ATMs, the e-rupee would be credited to your wallet. From there, it can be used for digital transactions.

posted in Indian Newspapers around December 7th 2022.

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