What do you mean by Digital Rupee? In this context, explain the working and progress of India’s Central Bank Digital Currency (CBDC).

TheDigital Rupee (e₹) is India’s Central Bank Digital Currency (CBDC), i.e. the digital form of the rupee issued by theRBI as legal tender and a direct liability of the central bank. Unlike private digital money, it carries sovereign backing and is exchangeable at par with physical currency.

Working of Digital Rupee

1. RBI-Issued Sovereign Money: RBI creates and issues e₹ electronically to participating banks & non-banks, which distribute it to users through digital wallets.
2. Wallet-Based Transactions: Users hold e₹ in wallets and conduct P2P (Peer-to-Peer) &P2M (Peer-to-Merchant); CBDC transactions between e₹ wallets can settle instantaneously without passing through bank accounts.
3. Interoperability with UPI: e₹ users can scan UPI QR codes through an e₹ app, making CBDC compatible with India's existing payment ecosystem.
4. Two-Tier Architecture: RBI remains the issuer, while banks/non-banks undertake distribution & customer-facing wallet services, reducing the need for RBI to directly manage retail accounts.
5. Programmability: e₹ can be programmed for specified purposes such as DBT, interest subvention & employee allowances, with conditions such as expiry date or merchant category.
6. Offline Capability: RBI is testing offline solutions, including transactions using Near Field Communication, to enable CBDC payments in areas with limited or no internet connectivity.

Progress of India's CBDC

1. Retail Pilot: e₹-R pilot began onDecember 2022 and has expanded from a closed-user pilot to users and merchants of participating banks/non-banks across India.
2. Growing Participation: By June 2024, the retail pilot had50 lakh users & 4.2 lakh merchants, indicating substantial expansion of the ecosystem.
3. Institutional Expansion: As of April 2026, 19 banks were offering CBDC wallets, while the wholesale pilot had 16 participants, including banks & non-banks.
4. Wholesale Applications:e₹-W (Wholesale Central Bank Digital Currency) is being used for Government Securities settlement, inter-bank call-money transactions & tokenised Certificate of Deposit issuance/settlement, demonstrating applications beyond retail payments.
5. Innovation & Asset Tokenisation: RBI's CBDC and Asset Tokenisation (CAT) Sandbox provides a controlled environment to test programmability, interoperability, cross-border applications and tokenised assets.
6. International Potential: CBDC's programmability and interoperability are being explored for cross-border payments, potentially reducing settlement frictions and costs. RBI's Concept Note identifies cross-border payments as a potential use case.

India's CBDC journey has moved from experimentation to a broader pilot ecosystem, with retail, wholesale, programmability, offline payments and tokenisation being tested. Its success will depend on achieving mass adoption, interoperability, privacy, cybersecurity and financial stability while complementing rather than displacing India's highly successful existing payment systems.