The Reserve Bank of India (RBI) on Wednesday clarified the key differences between the Central Bank Digital Currency (CBDC) and Unified Payments Interface (UPI). RBI Governor Shaktikanta Das clarified that, unlike UPI, e-rupee transactions will not have any intermediary. 


Speaking with the media after the monetary policy announcement, Das said, "Any UPI transaction involves the intermediation of the bank. So, when I use a UPI app, my bank account gets debited and money gets transferred to the recipient's bank. In paper currency, you can draw Rs 1,000 from the bank, keep it in your wallet and spend it at a shop."


"Similarly in CBDC, you will draw the digital currency and keep it in your wallet in your mobile. When you make a payment at a shop or to another individual, it will move from your wallet to their wallet. There is no routing or intermediation of the bank," Das said.


On December 1, RBI launched the pilot for the retail CBDC or e₹-R, the equivalent of currency in digital form. There has been debate about whether customers would go for e₹-R as UPI has emerged as a popular digital payment method.


Further elaborating on CBDC, RBI Deputy governor T Rabi Sankar said that similar to cash, CBDC can enable the movement of money directly between two private entities, individuals, or businesses. While in UPI, the movement is only between two bank accounts.


“Plus, its use cases can be many more. Money has various functions, it can do all those functions. It all depends on how much our startup and fintech ecosystem innovates and what kind of payment channels it opens up. We will set up the base system and then the private sector can innovate,” Sankar added.


On the concerns regarding the anonymity in e-rupee transactions, the RBI governor said, “When you pay in currency notes to another person, no one can find out because that information is not available to the bank. Even in the case of CBDC, you cannot find out because the information is not available to the bank. It goes from my mobile to another mobile. So, why should we create a fear psychosis.”


There have been concerns that e-rupee transactions may leave behind digital footprints. "It is also possible to get a legal provision to ensure anonymity although what exactly will happen will depend on how things evolve but anonymity is a basic feature of currency and we'll have to ensure that,” Sankar added.


Das also said that there is no difference between paper currency and digital currency according to the law. Income tax rules of physical cash, for instance, would apply to CBDC.


The RBI had announced the retail CBDC pilot in partnership with a few banks and in some cities. The pilot is being implemented among a small group of customers and merchants in four cities of Mumbai, New Delhi, Bengaluru, and Bhubaneswar.