One Step Forward in Digitizing India: Digital Rupee

Vamsi Gokaraju


The Finance Minister Nirmala Sitharaman in the Union Budget 2022-23 announced that the RBI will soon launch the Digital Rupee using blockchain technology. This digital rupee will be India’s CBDC. A Central Bank Digital Currency or a CBDC is a virtual form of fiat currency. A fiat currency is a currency that is backed up by the government. E.g., bank deposits, coins, currency notes.

What does a virtual form of fiat currency mean?

Well in simple words, it is money in the economy which we cannot feel or touch. It’s virtual. A CBDC will have the same value as that of the country’s normal fiat currency (like notes, coins, and bank deposits). Its function is also the same. You can use it to buy or sell goods and services or use it to invest in any assets or simply save it for future consumption.

How is it different from UPI payments and bank transfers?

When you’re making a payment using a UPI app (like PhonePe or Gpay) or a bank transfer, there is a middleman in the transaction, which is the bank itself. The exchange of money is a matter of seconds for the user but there is a huge process that goes on in the back end with the banks. The banks will authenticate the transaction only once it checks and passes all the parameters of the transaction.

The goal of CBDC is to eliminate the middleman (banks) authenticate the transaction and transfer the money automatically to the receiver. This technology might sound familiar to certain people. Well, this is the exact technology that cryptocurrencies use. Blockchain Technology. Blockchain is a decentralized ledger that stores data in a block which is secured by a process known as ‘Proof of work’

So, a CBDC is a cryptocurrency then?

No, it is the opposite of cryptocurrency. Cryptocurrency’s main motive is to eliminate the government’s intervention and to keep all transactions private. A CBDC, though it would be using blockchain technology, won’t be private. It will be completely owned and traceable by the Government.

After all, a CBDC is a currency that is issued by the government itself, and unlike cryptocurrencies, CBDC is a legal tender in the country it’s issued and is also accepted by other countries to exchange or buy the currency.

(Note: there could be CBDCs that run without the blockchain technology as in the case of digital Yuan but they’re also looking for a way to introduce blockchain into their CBDC)

Updates on Digital Rupee

India launched two pilots in 2022. The first was the wholesale CBDC known as the CBDC-W which began on November 1st. The CBDC-W is restricted to financial institutions and is meant to improve the efficiency of interbank payments. The second pilot, the Retail CBDC known as the CBDC-R was launched on December 1st. The CBDC-R is meant for the private sector and citizens of India.

Now let’s look at the pros and cons of switching to a CBDC.


1) Huge reduction in the expenses incurred to print notes and in the making of coins, distributing, and storing the money. India approximately spends $600 million to print cash alone and costs more to manage it. These expenses can be drastically reduced due to the introduction of CBDC.

2) Money given as subsidies can be made sure to be used for the purpose it was distributed instead of hoping that the people who receive it use it for the right purpose.

3) CBDCs are programmable money. This means that digital money can be programmed in a way to spend it on certain items/services only. E.g., when the government gives subsidies for a particular necessary item to a low-wage worker. They can use that subsidy to buy only that necessary item. If they try to buy something else, the transaction will be failed.

4) When using a CBDC, every transaction is recorded and accessible to the government. This will give a greater account to the government regarding the amount of the transactions, and the number of transactions that take place in the economy.


1) Privacy will be a lost concept. The government will have track of every paise that a person spends using the CBDCs. They will know what you spent it on, where you spent it, and who is receiving it.

2) Being a very new concept, scammers and hackers will be ready to misuse the opportunity of CBDCs and use it to their advantage.

3) The usage of CBDC will be a technology-oriented process. Even though UPI has spread across India and is used by a majority of Indians, switching to a new form of payment will definitely have a learning curve that might be difficult for older or rural citizens of the country to grasp easily.

Road Ahead

The banking sector and the Indian economy in general will have a huge impact due to CBDC in India. The RBI-issued Digital Rupee will be a part of the total money supply in the economy, which will affect prices and demand. It will also alter the velocity at which currency circulates and should reduce transaction costs overall, increasing efficiency.

Additionally, it has the potential to greatly boost the formation of monetary policy in India. This is because digital currencies issued by the central bank provide greater surveillance and real-time situational monitoring, which can greatly stimulate these processes.

There is still a long time to understand if the Digital Rupee is successfully implemented or not since it is still in its pilot phase. However, if the government manages to transfer into the CBDC environment slowly and seamlessly, being aware and alert of the kind of hacking and scamming that could take place in said environments and maintaining a level of privacy that ensures a certain level of security to the users; Digital Rupee will be a huge success.


  1. Jasdeep Kaur, 2023, “Central Bank Digital Currency- The ‘digital rupee’ in India”, EPW Engage.
  2. Pushpa Marwal, 2023, “Central Bank Digital Currency in India: The New Money is Here”, Forrester.
  3. IBEF, 2022, “India- One of the Pioneers in Introducing CBDC”, IBEF Blog.
  4. Amitoj Singh, 2023, “Unpacking India’s CBDC Pilots as Country Prepares for Digital Rupee”, CoinDesk.

Written by Vamsi Gokaraju.

Acknowledgement: The author would like to thank Prasangana Paul, Aaswash Mahanta, and Ananya Anand for their kind comments and suggestions to improve the article.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

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