What is the Digital Rupee? How does it work? How is it different from your UPI transactions?

What is the Digital Rupee? How does it work? How is it different from your UPI transactions? | Vrid

From the days of bartering goods to the era of sparkling gold coins, our journey through the world of money has been a fascinating one. But as technology advances, so does our currency.

Now, we are embarking on a journey into the world of digital currencies, and one of the latest buzzwords in the Indian financial landscape is “Digital Rupee (E-Rupee) or the Central Bank Digital Currency (CBDC).”

Let’s discuss what is Digital Rupee? How does it work? And how is it different from our UPI transactions?

Estimated read time: 4 minutes and 48 seconds

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What is the Digital Rupee?

Imagine carrying your cash-filled wallet in your smartphone. This wallet isn’t stuffed with physical notes but rather with a digital version of the Indian Rupee issued by the Reserve Bank of India (RBI)–the Digital Rupee.

This isn’t a fancy cryptocurrency like Bitcoin; it’s a digital version of the familiar Indian Rupee, designed to make transactions easier and more efficient in the digital age.

RBI launched a pilot of the Digital Rupee in both the wholesale (Banks) and retail (individuals) segments last year. And many of you would have already received an invitation from your bank to use the Digital Rupee.

Also, let’s clear up this one confusion. Digital Rupee and e-RUPI are different. e-RUPI is a one-time payment mechanism used to redeem a voucher.

How does the Digital Rupee work?

From our point of view (individual residents), Digital Rupee is almost similar to UPI. This means all you need to do is open the wallet app on your mobile and make the payment. That’s it, and the transaction gets completed in seconds.

But let’s understand it a little deeper. Think of the Digital Rupee as a tech-savvy cousin of the traditional rupee notes and coins we use. Instead of physical currency, it’s a digital representation stored securely on your device. When you make a payment, it’s like handing over a digital note to the recipient.

The Digital Rupee relies on blockchain technology, which is like a super-secure digital ledger. This is a secure and transparent way to record transactions. The RBI issues the Digital Rupee and ensures its authenticity.

When you spend it, the blockchain keeps a record of the transaction, making sure nobody cheats the system.

How to use Digital Rupee?

  1. Wallet Registration: To use the Digital Rupee, you’ll need to download a secure mobile app provided by your bank or the RBI. This app creates a digital wallet for you, just like a regular wallet, but on your phone.
  2. Funding your wallet: Similar to loading cash into your physical wallet, you’ll add money to your digital wallet. You can do this by linking your bank account or transferring funds from your existing account to your digital wallet.
  3. Transactions: Once your wallet is funded, you’re all set to make transactions. You can use your Digital Rupee to pay for goods and services, transfer money to friends and family, or even settle bills at local stores that accept digital payments.
  4. Security measures: To ensure your money is safe, the Digital Rupee employs robust security measures such as encryption and two-factor authentication. This way, your virtual money remains protected from unauthorized access.

Benefits of the Digital Rupee

  1. Convenience: No more fumbling for change or worrying about carrying enough cash. With the Digital Rupee, your phone becomes your wallet, making payments as easy as sending a text.
  2. Financial inclusion: Many Indians still lack access to traditional banking. The digital currency can bridge this gap, allowing more people to take part in the financial system.
  3. Reduced transaction costs: Traditional payment methods involve intermediaries, which lead to fees. Even UPI has too many intermediaries. The Digital Rupee’s direct transactions could potentially cut these costs.
  4. Counterfeit prevention: Counterfeit currency has been a problem for ages. With the digital format, each unit of the Digital Rupee is unique and nearly impossible to replicate.
  5. Tracking and transparency: Every transaction is recorded on the blockchain, ensuring transparency and reducing the chances of fraud and corruption.

Disadvantages of the Digital Rupee

  1. Tech barrier: While the younger generation might find it a breeze, older individuals less accustomed to technology could face a learning curve.
  2. Security concerns: While blockchain technology aims to minimize security risks, there’s always a risk of cyber threats. Hacking or unauthorized access to your digital wallet could cause a loss of funds.
  3. Privacy: With every transaction recorded, concerns about personal privacy might arise. Striking a balance between transparency and privacy will be crucial.
  4. Dependence on technology: To use the Digital Rupee, you need a smartphone and a stable internet connection. This could be a limitation for those in remote areas with poor connectivity.

Digital Rupee vs UPI

You might wonder, how is the Digital Rupee different from the UPI (Unified Payments Interface) transactions?

Digital Rupee:

  • A digital version of the Indian Rupee.
  • Stored in a digital wallet on your smartphone.
  • Operates as a form of digital currency, similar to physical notes and coins.
  • Can be used for a wide range of transactions, from buying goods to transferring money.
  • Requires a dedicated app and wallet setup.


  • A payment system that facilitates interbank transactions.
  • Links your bank account to a unique UPI ID.
  • Involves transferring funds directly between bank accounts.
  • Commonly used for peer-to-peer transactions, bill payments, and online shopping.
  • Requires a UPI-enabled app linked to your bank account.

While both the Digital Rupee and UPI aim to simplify transactions, the former is a digital currency whereas the latter is a method to facilitate digital payments through existing bank accounts.

As mentioned earlier, for us end-users, the Digital Rupee might not be that different from the UPI. But in the back end, the Digital Rupee helps RBI in reducing costs, increasing the speed and transparency of transactions.

Printing physical currency, transporting it, and managing it involves costs. If all goes well, soon, RBI won’t have to print notes. Digital Rupee can help reduce these expenses, ultimately benefiting the economy.

The Road Ahead

Governments worldwide are exploring digital currencies, and India is stepping into this arena with its CBDC. The coming years will show us how this experiment shapes the financial landscape.

As the Digital Rupee makes its debut, it’s essential to keep in mind that it’s not here to replace traditional cash overnight. It’s a step towards a more digitally inclusive economy, where both forms of currency can coexist.

With its potential to enhance convenience, speed up transactions, and promote financial inclusion, it’s undoubtedly a concept to watch out for. However, like any technology, it comes with its own set of problems. Let us know if you want us to discuss these problems in detail. 

Remember, just like with any financial innovation, knowledge is your best asset. Stay curious, stay informed, and keep those digital wallets ready for a new era of financial possibilities!

Check out our financial current affairs series to know what else is going on in India.

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Still Curious?

If you are like us, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.

Forbes Advisor – What Is Digital Rupee? How Is It Different From Cryptocurrency?


Labour Law Advisor – How to use e-Rupee | Digital Rupee App Tutorial | CBDC

Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.

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DISCLAIMER: This newsletter is strictly educational and is not an investment advice or a proposal to buy or sell any assets. Please be careful and do your own research.

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