CBDC — Digital Rupee (e₹)

What is CBDC?

A Central Bank Digital Currency (CBDC) is the digital form of a country’s sovereign fiat currency, issued and regulated by its central bank. India’s CBDC is called the Digital Rupee (e₹) or e-Rupee, issued by the Reserve Bank of India (RBI) as a direct liability of the central bank — just like physical cash. ¹

Unlike private cryptocurrencies (Bitcoin, Ethereum), the Digital Rupee is legal tender — guaranteed by the Central Government under Section 26 of the RBI Act, 1934. ² It is at par with physical currency and can be used as a medium of exchange, store of value, and unit of account. ³

India operates two CBDC pilots:

How It Works

Architecture

The Digital Rupee uses a two-tier distribution model: ⁴

1. Tier 1 — RBI: Creates and issues e₹ to participating banks and non-bank entities
2. Tier 2 — Banks/Non-banks: Distribute e₹ to end users via digital wallets

Transaction Flow (Retail)

1. Load e₹: User loads Digital Rupee from bank account into e₹ wallet (24×7, including holidays)
2. Store: e₹ held in denominations (e₹1, e₹5, e₹10, e₹20, e₹50, e₹100, e₹200, e₹500) — just like physical cash
3. Transact: Pay merchants via CBDC QR code or UPI QR code, or send P2P
4. Settle: P2P/P2M via CBDC QR settles instantly between wallets (no bank intermediary). Via UPI QR, settlement follows UPI timelines. ⁵
5. Redeem: Convert back to bank account anytime

Key Features

CBDC vs UPI: Key Differences

A common question: “If we already have UPI, why do we need CBDC?” ⁶

Key insight: UPI moves money between bank accounts. e₹ is the money itself, held in a digital wallet outside the banking system — closer to the properties of physical cash.

Key Statistics (Verified)

Growth trajectory: e₹ circulation grew 180× from March 2023 (₹5.7 crore) to March 2025 (₹1,016.5 crore), then declined 24% in FY26 as RBI shifted focus from volume to feature testing. ⁷⁸

Programmability — Purpose-Bound Money

Programmability is the Digital Rupee’s most distinctive feature. Funds can be programmed with specific rules: ⁹

Active DBT pilots: In Gujarat, Puducherry, and Chandigarh, Public Distribution System (PDS) beneficiaries receive food subsidies via programmable CBDC — redeemable only for eligible commodities at fair price shops and identified merchants. ¹⁰

Citizen concern: Programmability raises questions about financial autonomy. If every rupee can be restricted by the issuer, it blurs the line between sovereign currency and controlled benefit. The DPDP Act’s exemptions for state agencies (Section 36) could allow unprecedented surveillance of spending patterns. ¹¹

Layers Classification (DPI Stack)

1
2
3
4
5
6
7

L7 - Applications: e₹ wallets (SBI, ICICI, HDFC, etc.), merchant apps
L6 - Use Cases:    Retail payments, DBT, cross-border, asset tokenisation
L5 - Programmable  Platform: Smart contracts, purpose-bound rules
L4 - Settlement:   e₹-W for interbank, e₹-R for retail
L3 - Distribution: 19 pilot banks + non-bank intermediaries
L2 - Core Ledger:  Token-based system (partially blockchain-based)
L1 - Issuer:       Reserve Bank of India

Regulatory Framework

Legal Basis

The Government of India notified necessary amendments to the RBI Act via gazette notification dated 30 March 2022, conferring legal tender status to the Digital Rupee. ¹²

Governance

• Issuing Authority: Reserve Bank of India (RBI), FinTech Department
• Concept Note: Released 7 October 2022 — defines objectives, design choices, benefits, and risks ¹
• CAT Sandbox: CBDC and Asset Tokenisation Sandbox for testing interoperability, programmability, and new business models in a non-live environment ⁵
• Status: Pilot phase — no timeline for full-scale launch announced. RBI Governor has stated there should be “no rush” for nationwide rollout. ¹³

Citizen Rights Analysis

Privacy Implications

What citizens should know:

1. Anonymity levels: The RBI Concept Note indicates small-value retail transactions will remain anonymous (similar to cash). However, larger transactions may require self-disclosure for AML/CFT compliance. ⁴

2. Transaction visibility: Even with “anonymity” for small transactions, the central bank and intermediary banks can see transaction patterns. Unlike physical cash, digital cash leaves a data trail.

3. Programmability risks: Purpose-bound money could be used to restrict spending autonomy — e.g., restricting subsidy funds to specific merchants could track where citizens buy essentials.

4. DPDP Act interaction: The DPDP Act, 2023 applies to CBDC transaction data. However, Section 36 grants broad exemptions to government agencies in the interest of “security of state, public order, and prevention of offences” — raising concerns about unchecked surveillance. ¹¹

5. Human Rights Watch has noted that autocratic governments have been more aggressive in embracing CBDCs for surveillance capabilities. India must ensure democratic safeguards are built into the system’s design, not bolted on later. ¹⁴

Benefits for Citizens

Risks for Citizens

Safeguards

1. Pilot-first approach: RBI is deliberately slow-rolling — testing features (offline, programmability) before scale. No “rush” for full launch. ¹³

2. No interest on wallets: e₹ is designed as cash, not a deposit product, limiting displacement of bank deposits.

3. Co-existence model: The RBI has explicitly stated CBDC will coexist with, not replace, existing payment systems. ³

4. Robust cybersecurity: RBI has established a “robust cyber-security framework” for e₹ wallet security. ⁵

5. Wallet recovery: Unlike physical cash, e₹ is recoverable if a device is lost — using phone number/SIM on a new device.

6. Tiered anonymity: Small transactions remain anonymous; only larger ones trigger KYC/AML checks.

7. CAT Sandbox: New use cases and interoperability tested in a non-live environment before deployment. ⁵

8. DPDP Act oversight: Citizens have rights under the DPDP Act, 2023 regarding their personal data in CBDC transactions — though state exemptions are broad.

Cross-Border Expansion

The RBI is actively pursuing cross-border CBDC pilots: ¹⁰

This positions the Digital Rupee as a potential challenger to stablecoins for international remittances. ¹⁰

Complaints & Grievance Redressal

For e₹ issues, citizens can:

1. Raise disputes via the e₹ wallet app directly
2. Contact the customer care centre of their pilot bank/non-bank provider
3. File complaints with the RBI’s Complaints portal: rbi.org.in/Scripts/Complaints.aspx

Note: The CBDC pilot does not yet have a dedicated, public-facing grievance mechanism beyond existing banking channels. As the system scales, this gap needs addressing.

Prime References

Last updated: June 2026. This explainer is part of the DPI Watch 101 Series.