Back in 2016, when UPI was started there was very little adoption of this technology. Close to zero transactions were done in the first three months. But over the next three years, the technology found a massive adoption. And right now, approximately 500 crores of transactions are done every single day. The reason why UPI was so successful was that it was safe, secure, easy to understand and easy to execute. All these benefits led to the massive adoption of UPI.
So, as of December 2022, the government of India has decided to launch its own CBDC (Central Bank's Digital Currency) called the digital rupee.
The digital rupee is a currency issued by the Reserve bank of India in alignment with their monetary policy, meaning that the central bank will have full control over the amount of digital rupee flowing into the economy. Moreover, It is also freely convertible against commercial bank money and cash, meaning that it can be deposited in your bank account or can be withdrawn as hard cash.
A question that arises here is "how is the digital rupee different from the existing digital money available to the public?".
It is different as the digital rupee would be a liability of the reserve bank of India rather than the commercial banks. This means that it will be operated by the central bank and not by any commercial banks. So unlike UPI, where linking two different platforms with the same bank account may generate different UPI IDs, only one digital rupee wallet can be used.
The digital rupee is not meant to replace the current forms of money, rather, it is aimed to complement current forms and provide an additional payment avenue to users.
The CBDC holds multiple advantages over other forms of money which include: a reduction in cost associated with physical cash management; efficiency and innovation in payments; cross-border transactions; financial inclusion.
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