What is e-rupee and why do Google Pay, PhonePe want to join RBI’s digital rupee project?

Google, PhonePe, Amazon Pay, Cred, and Mobikwik are looking to join the Indian central bank’s digital currency project.

The story so far: Fintech companies including Google, PhonePe, Amazon Pay, Cred, and Mobikwik are looking to join the Indian central bank’s digital currency project by allowing their users to transact in e-rupee via Unified Payments Interface (UPI). Through this move, these payment platforms seek to widen their use case beyond enabling payment transactions between users linked to their registered banks in the country.

The e-rupee, or the digital rupee, is a digital currency issued by the RBI. It is aimed at creating an additional option for using money. The digital rupee is available entirely in electronic form and does not leave a computer network.

The e-rupee is like banknotes issued by the RBI and is a legal tender that can be used to make transactions. The only difference is that they can only be transacted online.

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While the e-rupee is a legal tender issued by the central bank, it is different from the deposits you hold in a bank. Unlike deposits which pay interest, the digital rupee in users’ wallets does not attract interest payments from the central bank. However, deposits held in banks can be converted into digital rupees and vice versa for ease of use.

The digital rupee was launched on a pilot basis in December 2022. At the time, the currency was offered by a select group of public and private banks in a few major cities and could be used for both person-to-person and person-to-merchant transactions.

At the time of its launch, the digital rupee was thought of as an alternative to cryptocurrencies. Since cryptocurrencies are viewed by many as an alternative to fiat currencies, which progressively lose their value, the RBI hoped the digital rupee would bring greater transparency to transactions and lower the costs associated with the production of traditional fiat currencies.