How Is E-Rupee Different From UPI? RBI Explains

E-rupee is money. UPI is a payment method. But that's just one of the differences.

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The launch of the pilot for a retail central bank digital currency in India has raised a question: how different will it be from the already popular Unified Payments Interface?

The e-rupee, India's CBDC, will distinguish itself from the UPI in the way transactions move between two parties, according to RBI Governor Shaktikanta Das. While the UPI involves the movement of funds between two bank accounts, the CBDC will instead move funds from one party's wallet—on their mobile phone—to the other's, he said.

"There is no routing, and there is no intermediation by the bank," Das said during the press conference after the monetary policy announcement. While banks will issue the CBDC to the users, they won't be involved in the transaction, as opposed to the UPI, which requires the transmission of messages between the payment platforms and banks.

In CBDC, just as with paper currency, you go to a bank—let's say you're drawing some Rs 1000 currency notes. You draw Rs 1,000 and keep it in your purse. You go to a shop and you pay Rs 500. You take out Rs 500 and pay.
Shaktikanta Das, governor of Reserve Bank of India

"E-rupee is money. UPI is a payment method," said Reserve Bank of India Deputy Governor T. Rabi Sankar. It's possible for two private parties to provide wallets, and money can move between those, he said, adding that it wouldn't be possible using the UPI. "We'll set up the base system, and then the private sector can innovate."

Given that cash is fundamentally required to be anonymous, a similar requirement applies to retail CBDC, Sankar said. While anonymity can be achieved both through technological and legal means, the way things evolve will determine the RBI's approach, he added. "But anonymity is a basic feature of currency, and we'll have to do that," he said.

Just like how cash also has certain limits prescribed by the Income Tax Department on how much of it can be withdrawn or used for payments, similar requirements would also apply to the CBDC, Das said.

"The experience of the wholesale pilot has been very satisfactory," Das said. The retail pilot has just started, and the RBI will fine-tune it as per the experience, he added.

Since the CBDC will get the same legal treatment as cash, will it be possible for someone—say a merchant—to refuse payment via the e-rupee?

Legally, merchants cannot say no to cash. However, the CBDC is only in its pilot stage, and the RBI doesn't seem to have made up its mind on this front. "These kinds of questions will come up before us, and as we move forward, we'll deal with them," Das said.