From UPI To e-Rupee: Why India Introduced A Digital Currency And How It Could Change Payments

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Digital payments have become a routine part of everyday life in India. Whether it is paying a shopkeeper through UPI or shopping online with cards, most transactions today happen electronically. Alongside these, India has now introduced a new form of money called the e-rupee, the country’s official digital currency issued by the central bank. While it may sound similar to other digital payment methods, the e-Rupee represents something different. It is not a payment platform but a digital version of the Indian rupee itself.

Understanding the e-Rupee 

The e-Rupee is India’s Central Bank Digital Currency (CBDC) issued by the Reserve Bank of India. It is essentially a digital form of cash that carries the same value as physical currency notes issued by the central bank. Unlike cryptocurrencies, the e-Rupee is backed by the central bank, making it a stable and regulated form of digital money. 

India began testing the digital rupee through pilot programmes in November 2022 for wholesale transactions and December 2022 for retail users. The retail pilot was expanded in December 2023 across select regions, involving around 19 banks and both individual users and merchants. By March 2025, usage had grown to nearly half a million monthly transactions, with more than 6 million users and circulation exceeding Rs 1,000 crore. 

How the digital rupee works 

The e-Rupee is stored in a digital wallet provided by participating banks. Users can transfer money from their bank accounts into this wallet and use it to make payments. The process is designed to feel familiar. Users can send money to another wallet, pay merchants through QR codes, or make peer-to-peer transfers, similar to existing digital payment systems.

A key difference is settlement. Payments through the e-Rupee are completed instantly, like handing over cash. Once transferred, the money moves directly between wallets. Some pilot systems are also exploring offline payments, allowing transactions without internet connectivity. 

Why India introduced the e-Rupee 

Central banks around the world are exploring digital currencies as financial systems become more technology-driven. For India, the digital rupee serves several purposes. It strengthens the country’s digital payments ecosystem and provides a government-backed digital alternative to cash. It can also improve payment efficiency by reducing settlement time and transaction costs. Another important objective is financial inclusion, particularly in areas where access to banking services remains limited. 

How it differs from UPI or cards 

Although the e-Rupee is digital, it works differently from systems such as UPI or credit cards. When a UPI payment is made, money moves between bank accounts. Credit cards, on the other hand, involve borrowing, with transactions settled later through the banking network. The e-Rupee functions more like digital cash. The value is transferred instantly from one wallet to another, and the transaction is final once completed. This structure may make it useful in situations where immediate settlement is important. 

The e-Rupee represents an early step in the future of money in India. It combines the reliability of central bank-issued currency with the convenience of digital payments. While adoption is still evolving, the concept highlights how financial systems are adapting to a more digital world. As technology and regulation continue to develop, the e-Rupee could gradually become another everyday way for Indians to store and transfer money. 

(The author is Associate Analyst, Communications, BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)