What is e-rupee? How does RBI plan to use it in offline mode?

The RBI is planning to introduce offline e-rupee transactions soon. RBI governor Shaktikanta Das made the announcement in the backdrop of the central bank concluding its three-day Monetary Policy Committee meet on Thursday. This comes in the backdrop of the  RBI’s high-powered rate setting panel today unanimously voting to keep the policy repo rate – the rate of interest at which the RBI lends to other banks – unchanged at 6.5 per cent. This is the sixth straight time it has done so. But what is the e-rupee? How does RBI plan to use it in offline mode? Let’s take a closer look: What is it? The e-rupee, or digital rupee, is officially known as Central Bank Digital Currency (CBDC).

The central bank defines CBDC as the legal tender issued by it in a digital form.

According to the website, e-rupee is the same as a sovereign currency. It is exchangeable one-to-one at par (1:1) with the fiat currency So it is basically the rupee – but in 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. CBDCs would appear as liability on a central bank’s balance sheet,” the website states. The RBI had listed several features of CBDCs including

• Appearing as a liability on the central bank’s balance sheet
• Being accepted as a medium of payment, legal tender, and a safe store of value by all citizens, enterprises, and government agencies
• Freely convertible against commercial bank money and cash
• Fungible legal tender for which holders need not have a bank account
• Expected to lower the cost of issuance of money and transactions

It also listed several advantages of CBDCs including transactions being carried out both Person to Person (P2P) and Person to Merchant (P2M), payments being made to merchants via QR codes, the e-rupee would offer trust, safety and settlement finality. The e-rupee, like cash, does not earn any interest, the bank added. The bank said the e-rupee, much like cash, can be converted to other forms of currency – for example bank deposits. “CBDCs have some clear advantages over other digital payments systems, as it being a sovereign currency, ensures settlement finality and thus reduces settlement risk in the financial system. CBDCs could also potentially enable a more real-time, cost-effective seamless integration of cross border payment systems. India has made impressive progress in innovation in digital payments. The payment systems are available 24X7, 365 days a year to both retail and wholesale customers, they are largely real-time, the cost of transaction is perhaps the lowest in the world, users have a wide array of options for doing transactions and digital payments have grown at an impressive CAGR of 55 per cent over the last five years,” the central bank stated on its website. The Reserve Bank added that among its key motivations to introduce CBDCs in India are to reduce the costs involved in physical cash management, to increase financial inclusion, bring resilience, efficiency, and innovation in payments system, make the settlement system more efficient and boost innovation in the cross-border payments space. The central bank said it is looking to offer the public private virtual currencies without the associated risks. How will it be used in offline mode? The RBI had launched a pilot program for the retail CBDC in December 2022. Several banks including State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank, and HSBC had participate in the pilot program across Mumbai, New Delhi, Bengaluru and Bhubaneswar. The Central bank had  achieved the target of having 10 lakh transactions a day by December 2023.

The RBI plans to introduce the offline mode on the aforementioned CBDC pilot project.

Das said that programmability-based additional use cases will be introduced as part of the pilot project. [caption id=“attachment_13302802” align=“alignnone” width=“640”] The RBI had launched a pilot of the retail CBDC in December 2022. PTI[/caption] Das explained, “It is proposed to introduce an offline functionality in CBDC-R (Retail) for enabling transactions in areas with poor or limited internet connectivity.” He said multiple offline solutions, which include both proximity and non-proximity based ones, will be tested across hilly areas, rural and urban locations for the purpose. On the programmability front, he said that currently, the system enables Person to Person (P2P) and Person to Merchant (P2M) transactions using digital rupee wallets provided by pilot banks. “It is now proposed to enable additional use cases using programmability and offline functionality,” he said. The programmability feature will permit users like government agencies to ensure that payments are made for defined benefits, he said, adding that corporates will also be able to programme specified expenditures like business travel for their employees. Additional features like validity period or geographical areas within which CDBC may be used can also be programmed, he said. RBI maintains status quo Meanwhile, the Monetary Policy Committee of the RBI, in its February review meeting, unanimously decided to keep the policy repo rate unchanged at 6.5 per cent. Deliberating the policy statement on Friday morning after a three-day review meeting, RBI Governor Shaktikanta Das attributed comfortable inflation and firm growth dynamics as the reasons behind maintaining the status quo the policy stance. Das said inflation is moving closer to the target and growth is holding better than expected. Retail inflation in India though, is in RBI’s 2 to 6 per cent comfort level but is above the ideal 4 per cent scenario. In December, it was 5.69 per cent Das said the MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. The Indian economy grew 7.6 per cent during the July-September quarter of the current financial year 2023-24, remaining the fastest-growing major economy. India’s GDP growth for the April-June quarter grew 7.8 per cent.

The three-day bi-monthly monetary policy committee (MPC) meeting of the RBI began on Tuesday.

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The RBI typically conducts six bimonthly meetings in a financial year, where it deliberates interest rates, money supply, inflation outlook, and various macroeconomic indicators. A considerable decline in inflation and its potential for further decline may have prompted the central bank to put the brake on the key interest rate again. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well. Barring the latest pauses, the RBI has raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline. With inputs from agencies