eRupee can’t be turned into cash directly, for now

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(This story originally appeared in on Jan 19, 2023)

Mumbai: Currency notes cannot be directly exchanged for central bank digital currency (CBDC), or the eRupee. Issuance of CBDC can happen only against deposits. However, the reverse — allowing cash to be withdrawn against eRupees — may be allowed in future. According to the RBI, the eRupee pilot project has progressed quite satisfactorily in a closed-user group and the number of users is gradually rising. Addressing an event at the Indian Merchants’ Chamber, Anuj Ranjan, general manager at RBI’s fintech department, said that the central bank will bear the costs relating to the eRupee as it will be part of the RBI’s liabilities just like currency. “The RBI will take care of the infrastructure as this is a public good. The issue of MDR will not be there.”

The MDR, or merchant discount rate, is the charge paid by merchants to banks to enable them to accept payments by cards. In November 2021, the RBI launched a pilot project for use of eRupee in wholesale trade and, a month later, for retail.

Speaking at the event, Ajay Rajan, country head for transaction banking at Yes Bank, said that the bank has already made the digital wallet available for download on the Apple App Store and Google Play Store. “The installation of the digital wallet can be done only by customers of the bank as we have restricted the app to SIM numbers that are registered with the bank by customers. However, once it is installed, customers can add digital rupees to the wallet from any bank,” he said.

Of the four banks that are part of the retail Central Bank Digital Currency (CBDC), private lenders Yes Bank, IDFC Bank and ICICI Bank have made their digital wallets for storing eRupees available for public download (the fourth participating bank is SBI).According to Rajan, while cash transactions are free, merchants do pay fees to cash-management companies for handling of currency notes. He said that several enterprise retail companies have signed up for accepting payments in eRupees and these include oil marketing companies, Reliance Retail and Natural Ice Cream.

Former RBI executive director G Padmanabhan said that the efficiency of the currency is determined by the speed at which it can change hands. “If money is the blood of the economy, the payment systems are the plumbing…nobody notices it when it is working, but when it does not, everything stinks.”

B Sambamurthy, former chairman of Corporation Bank, said that the cost of currency was not limited to printing of the notes but also in the logistics involved in transferring and withdrawing it from banks. “Every year, ATMs dispense nearly Rs 50 lakh crore of currency notes,” he said.Ranjan said that the eRupee would be inclusive and would work in an offline mode as well. He added that the RBI is working on several solutions to ensure that there is no double-spending of eRupee tokens when used offline.

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