Central Bank Digital Currency (CBDC) and India's Digital Rupee (e₹)

A Central Bank Digital Currency, or CBDC, is money issued by a country's central bank in digital form. In India, it is called the digital rupee or e₹, and it is issued by the Reserve Bank of India. It is the same rupee you hold as a paper note, only in electronic form. Just like a ₹100 note, one digital ₹100 is a direct promise of the RBI, so it is as safe as cash.

Why does it exist?

Paper money is costly to print, store, transport and replace. Private digital payments like UPI are fast, but the money inside them is bank money, not central bank money. A CBDC gives people a digital form of cash that is backed directly by the central bank. Central banks also started working on CBDCs because private cryptocurrencies and stablecoins began to spread. A government-backed digital currency keeps money under the central bank's control while giving people digital convenience.

Where did it come from?

The Bahamas became the first country to issue a national CBDC, the Sand Dollar, in October 2020. Nigeria launched the eNaira in October 2021. In India, the Finance Minister announced in the Union Budget 2022-23 (1 February 2022) that the RBI would issue a digital rupee from 2022-23, using blockchain and other technologies. The Finance Act, 2022 then changed the RBI Act, 1934 to allow this. The RBI released a Concept Note on CBDC in October 2022 and started pilots soon after.

The legal basis in India

The Finance Act, 2022 made three main changes to the RBI Act:

• It widened the definition of "bank note" in Section 2 to include currency in digital form.
• It amended Section 22, which gives the RBI the sole right to issue bank notes, so that this right covers digital currency too.
• It said some rules meant only for paper notes do not apply to the digital form.

So the e₹ is legal tender. That means everyone in India must accept it as payment, just like a paper note.

The two types of e₹

The RBI runs two separate versions:

• e₹-W (Wholesale): For banks and big financial institutions. Its pilot began on 1 November 2022. The first use was settling trades in government bonds between banks in the secondary market (the market where already-issued bonds are bought and sold). Nine banks took part at the start.
• e₹-R (Retail): For ordinary people and shops. Its pilot began on 1 December 2022. People keep e₹ in a digital wallet given by a participating bank and pay person-to-person or person-to-merchant, often by scanning a QR code.

How does it work?

India uses a two-tier model. The RBI creates the e₹ and gives it to banks. The banks then give it to the public through wallets. This is similar to how the RBI prints notes but you get them from a bank branch or ATM. The e₹ comes in the same denominations as paper notes. It does not earn any interest, just like cash in your pocket does not earn interest.

Newer features

Two features make the e₹ different from UPI:

• Offline payments: Some e₹ payments can work even with weak or no internet, which helps in villages and remote areas.
• Programmability: Money can be "tagged" so it can be spent only on a fixed purpose. For example, in Gujarat, Puducherry and Chandigarh, food subsidy under the Public Distribution System was credited as programmable e₹ that could be used only for eligible items at fair price shops.

How big is it in India?

The e₹ is still small compared with paper cash. As of 31 March 2026, e₹ in circulation was about ₹771.7 crore, down about 24% from about ₹1,016.5 crore a year earlier, according to the RBI's Annual Report 2025-26. Retail users were in the range of about 6 to 8 million by 2025.

Cross-border use and the UAE link

One of the biggest hopes for CBDCs is cheaper, faster payments between countries. On 15 March 2023, the RBI and the Central Bank of the UAE signed an MoU in Abu Dhabi to work on fintech, especially CBDCs. They agreed to test a bilateral CBDC bridge, so that remittances and trade payments could move directly from an e₹ wallet to a digital dirham wallet.

The UAE is one of the largest sources of remittances to India. The UAE also tested cross-border CBDC payments on mBridge, a multi-country platform, and made its first mBridge payment with the Digital Dirham in January 2024.

Commonly confused concepts

• CBDC vs cryptocurrency: A CBDC is issued and backed by the central bank and is legal tender. A cryptocurrency like Bitcoin is issued by no government, has no backing and its price swings wildly.
• CBDC vs UPI: UPI is a payment system that moves money between bank accounts. The money is a bank deposit. The e₹ is itself money, a direct claim on the RBI, not a bank deposit.
• CBDC vs stablecoin: A stablecoin is a private token whose value is tied to a currency like the dollar. It is only as safe as the private company behind it.
• e₹-W vs e₹-R: Wholesale is for banks settling large deals; retail is for everyday payments by people and shops.

Issues, criticism and the way forward

• Low use: Most people already find UPI fast and free, so they see little reason to switch to e₹. The fall in circulation in 2025-26 shows this.
• Privacy: A digital currency could, in theory, let authorities see how people spend. The RBI has said it wants privacy close to that of cash for small payments, but the exact rules are still developing.
• Risk to banks: If people move large deposits into e₹, banks could lose the deposits they use to give loans. Limits on wallet size are one way to manage this.
• Cyber security and technology: A national digital currency must be protected against hacking and outages.
• Way forward: The RBI has said it will push e₹ through targeted uses like welfare payments (programmability), offline payments and cross-border pilots with partners such as the UAE and Singapore.

Concepts to Know

• Central bank: The top bank of a country that issues currency and manages money supply. In India, it is the RBI.
• Legal tender: Money that everyone in the country must, by law, accept for payment of a debt.
• Blockchain: A shared digital record of transactions, kept on many computers at once, which is very hard to change secretly.
• Remittance: Money that people working abroad send back home to their families.
• Secondary market: A market where people buy and sell bonds or shares that were already issued earlier, not new ones.