RBI’s e-rupee could use UPI for a reformist leap

Source– The post is based on the article “RBI’s e-rupee could use UPI for a reformist leap” published in the “mint” on 6th September 2023.

Syllabus: GS3 – Indian Economy – Mobilisation of resources

Relevance- issues related to digitalisation of banking system

News– Recently, State Bank of India has integrated UPI with e-rupee wallets designed for holding the RBI’s central bank digital currency.

What are some facts about UPI?

The UPI system is administered by the National Payments Corporation of India. It is a consortium of financial institutions.

The UPI platform is built upon India’s state operated Aadhaar system, which utilises biometric IDs to verify the identities of bank and telecom users.

What are the benefits associated with integrating UPI with e-rupee wallets designed for holding the RBI’s central bank digital currency (CBDC)?

E-rupee holders can now use UPI to conduct swift retail transactions by scanning QR codes. This integration is expected to provide increased liquidity to e-rupees. It could potentially transform UPI in the future.

What will be the potential role of a CBDC with RBI’s e-rupee?

it can be a novel medium for offering a fast, cost-effective, and secure alternative to cumbersome cross-border money transfers. Such adoption would also support economic growth, international trade, and financial inclusion.

From a strategic perspective, using RBI’s digital tokens for trans-border transactions could potentially serve as a barrier against the adoption of cryptocurrencies and capital flight.

What is the significant distinction between CBDC and UPI?

CBDC represents a direct claim on the currency issuer, RBI. These IOUs are backed by RBI’s own guarantee, making them exceptionally secure.

In contrast, UPI relies on the safety of commercial banks participating in the payment process.