e-Rupi: Metamorphosis of a Lifestyle
The landscape of finance, in India is constantly evolving. India witnessed a groundbreaking transformation with the origin of the Unified Payments Interface (UPI). UPI was launched on April 11, 2016, by the National Payments Corporation of India (NPCI) as an instant real-time payment system. This ingenious payment system revolutionized the way we conducted transactions, allowing us to effortlessly make digital payments through our smartphones.
Before UPI, digital payments in India were fragmented, with different banks offering various mobile wallets and payment apps. This fragmentation made it challenging for users to transfer funds across different platforms. This is where UPI chipped in by providing a unified and inter-operable payment system that worked across all banks and payment service providers.
We can find a strong correlation between the UPI boom and Demonetization. The story begins on November 8, 2016, when the Indian government, under Prime Minister Narendra Modi, announced to demonetize all ₹500 and ₹1,000 banknotes. This decision aimed to curb black money, counterfeit currency, and corruption by enforcing these high-denomination notes as invalid.
Here enters UPI, which had been launched just a few months earlier in April 2016. During the demonetization period, UPI witnessed a surge in adoption as people sought alternative payment methods. The convenience and ease of UPI transactions became apparent, especially in a cash-strapped environment. People adopted UPI to pay for goods and services and transfer money to friends and family without relying on physical currency. The combination of demonetization and UPI acted as a catalyst for the mass acceptance of digital payments in India.
This cultural shift towards digital payments was also aided as smartphone penetration and internet connectivity increased in India, and more and more people adopted digital payment methods. UPI's user-friendly interface and instant fund transfer capabilities appealed to the classes to masses, from urban dwellers to those in rural areas.
From its humble beginnings in 2016, UPI quickly soared to astounding success, by hitting the mark of 500 crore transactions monthly by 2022.
As the world admired the operational efficiency of UPI, a new revolution was brewing in India - Central Bank Digital Currency (CBDC), also known as the e-Rupi. This concept captivated leaders across the globe and central banks, provoking them to explore the possibilities of government-backed digital currencies.
But why the sudden interest in CBDCs?
The growing demand for cryptocurrencies had poked countries to consider the value of having their own digital currencies. After all, who would entrust their nation's monetary power to an unknown and anonymous system? No matter what technological capabilities the cryptocurrencies are backed by, at the end of the day their value is volatile, and it certainly doesn't fulfil the need for a store of value.
But what exactly is a digital currency?
In the case of India's e-Rupi, it's a digital form of the national currency, the Indian Rupee. Similar to physical cash, e-Rupi carries the government's approval, making it a legal tender. However, the fascinating twist lies in the way it operates.
Imagine you're making a cash transaction, and on the currency note, you find the statement, "I promise to give an amount of 100 rupees to the holder." This promise, backed by the Reserve Bank of India (RBI), ensures the value of physical money, making it a 'Fiat currency'. With e-Rupi, this concept remains intact, but instead of using cash, you can make digital payments.
e-Rupi operates as a direct liability of the RBI, facilitating seamless transactions. When you make a payment with e-Rupi, the money is directly transferred from your bank account with RBI to the recipient's RBI bank account. It's like conducting a cash transaction but in the digital realm.
The underlying technology enabling such secure and direct transactions is the Blockchain Technology. It's more like a chain of unchangeable data blocks, making it impossible to alter or tamper with the information.
e-Rupi, utilizing private permission blockchain networks, ensures privacy and regulated security (this is what the government states). This distinguishes it from cryptocurrencies like Bitcoin, which operate on public blockchains, allowing anyone to access transaction details, a feature that makes them decentralized but also more vulnerable to malicious intent.
The introduction of a Central Bank Digital Currency or e-Rupi, as named by the RBI, holds immense potential to metamorphise India's financial landscape. It promises to streamline cross-border transactions, reduce corruption, and foster financial inclusion. With real-time transactions and traceability, it can bring transparency and formalize the economy. By offering insights into the economy's state, it allows the government and RBI to execute fiscal and monetary policies with precision.
The most interesting aspect of the e-Rupi is its traceability and direct benefit transfers which enables an efficient and transparent allocation of government funds to various public welfare schemes, reducing corruption and ensuring targeted distribution in different parts of the society.
The journey of E-Rupi, however, is not without its challenges. Integrating rural economies still reliant on traditional payment methods may pose hurdles. Ensuring online security against threats is a priority. RBI is carefully conducting the trials, conducting pilot projects to test the effectiveness and impact of E-Rupi.
As the world of finance continues to evolve, E-Rupi stands as a beacon of curiosity and quest. It holds the potential to reshape our shopping trends, business practices, and savings patterns, and a prospect to make our financial ecosystem more inclusive, transparent, and efficient.