Central Bank Digital Currency (CBDC) is the digital form of sovereign currency issued and backed by a country’s central bank. In India, the CBDC is called the e-₹ (e-Rupee) and is issued by the .
What exactly is a CBDC?
- A legal tender, just like cash
- Issued directly by the central bank
- Exists in digital form, but is not a cryptocurrency
- Represents a direct liability of the central bank
Types of CBDC
- Retail CBDC (CBDC-R)
- Used by the general public
- Cash-like, token-based
- Example: India’s e-₹ Retail
- Wholesale CBDC (CBDC-W)
- Used by banks and financial institutions
- For interbank settlements, government securities, clearing
- Improves efficiency of financial markets
Objectives of CBDC
- Provide a safe digital alternative to cash
- Reduce cost of currency management (printing, storage)
- Improve payment efficiency and settlement speed
- Strengthen financial inclusion
- Counter risks from private cryptocurrencies
- Enhance monetary policy transmission
- Enable cross-border payment efficiency (future use)
India’s CBDC: e-Rupee
- Pilot launched by RBI in 2022
- Two pilots:
- e-₹ Wholesale
- e-₹ Retail
- Operates through banks’ digital wallets
- Can work without continuous internet connectivity (offline features under testing)
CBDC vs Cryptocurrency
- CBDC: Centralised, sovereign-backed, legal tender, stable value
- Cryptocurrency: Decentralised, privately issued, highly volatile, no sovereign guarantee
Advantages
- Faster and cheaper payments
- Reduced dependence on cash
- Greater transparency (while allowing controlled anonymity)
- Safer alternative to unregulated digital assets
Concerns & Challenges
- Privacy vs surveillance balance
- Cybersecurity risks
- Impact on banks’ deposits if users shift to CBDC
- Need for robust digital infrastructure
