The Digital Rupee


The Reserve Bank of India’s (RBI) concept note on central bank digital currency (CBDC) or e-Rupee (e₹). Tand its plans to start pilot launches of this digital form of currency notes is an inflexion point in the financial sector.

About CBDC (e₹) :

  • Central Bank Digital Currency (CBDC) is a legal tender and a central bank liability in digital form denominated in a sovereign currency and appearing on the central bank’s balance sheet.
  • It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. So it can be converted or exchanged at par with similarly denominated cash and traditional central bank deposits.
  • The need for CBDC came from the growing popularity of crypto assets like bitcoin, dogecoin etc. These are decentralised, unregulated currencies/assets based on blockchain technology, which are very volatile. As such, they posed a risk to India’s financial system, as per RBI. Unlike cryptocurrencies, which are private in nature, RBI’s CBDC will be issued and controlled by the central bank itself.

Advantages of e₹ :

CBDCs will substantially change the very nature of money and its functions. It will also redefine the financial landscape of the economy and alter the ways of conducting monetary policy.

1. Ease of transaction:

RBI calls CBDC as e-Rupee (e₹) which will be released in two forms: wholesale for interbank settlements and retail for the public. Although issued by RBI, commercial banks can distribute digital currency further. One has to hold it in an e-wallet provided by a bank or any registered service provider, the RBI note said.

2. Tokenisation:

The transfer of e-rupees to the general public will happen through a token-based system. A person transferring the digital currency must have the recipient’s public key (a sort of digital address). The transfer is made using the recipient’s private key (a unique password) along with the public one.

3. Financial Inclusion:

A major attribute of the CBDC is its offline features that would make it possible to use it in remote locations and even when electrical power or mobile networks are not available. This offers great potential for reducing payment costs and reaching banking facilities to the disadvantaged and the unbanked. Thus, the CBDC can provide a major boost to the efforts to facilitate financial inclusion and give a major fillip to economic activities.

Drawbacks of CBDC (e₹) :

1. Details not worked out yet:

However, as the concept note of RBI clearly states, the route to the full launch of the CBDC is yet to be precisely worked out regarding critical design, technological, and regulatory issues. The most critical choice is about the design of the CBDC which not only influences the role and functions of the CBDC but has significant implications on the payments infrastructure, the impact of monetary policy, and the structure of the financial sector.

2. Choice of technology:

The digital nature of CBDC makes the technology its core attribute. The central bank has to choose between using a conventional centrally controlled database or a distributed ledger techno­logy, both of which have implications on the security and efficiency of the new payments system.

3. Structure of CBDC:

One of the proposals under consideration is a three-tiered CBDC structure. Such a structure would ensure that the issue and redemption of the CBDC is the sole prerogative of the central bank. This would facilitate an account-based CBDC in the wholesale segment for transactions between the central bank and financial intermediaries like banks.

4. Token based:

For peer-to-peer transaction in the retail market, a token based currency will be the main instrument with the distribution and payments services delegated to the banks. However, other models could also be used after feedbacks from the pilot launches.

5. Potential impact of the CBDC on monetary policy:

One school of thought argues that a CBDC faces the risk of speeding a run on the banks. This will not only impair the financial intermediation but could also adversely impact the efficacy of monetary policy. The other opinion is that an interest-bearing or renumerated CBDC can directly transmit monetary policy to all economic agents and ensure its faster transmission. The final outcome would be influenced by the design of the CBDC and the level of its usage.

Way Forward :

  1. The use of e-Rupee should be payment-focused to improve the payment and settlement system, along with other Indian systems like RUPI, Rupay, UPI.
  2. The data stored with the central bank in a centralised system will require robust data security systems to prevent data breaches. Cyberattacks on RBI’s servers would be disastrous to India’s financial system.
  3. Government and RBI also needs to strengthen the infrastructure required for payment transactions using CBDC. The RBI will have to map the technology landscape thoroughly and proceed cautiously with picking the correct technology for introducing CBDCs.
  4. RBI has to work out the details regarding critical design, technological, and regulatory issues, taking into confidence all stakeholders.
  5. While discouraging blockchain based private cryptocurrencies, RBI should not prevent development of the underlying technology.


An efficient and popular CBDC must make it at least as acceptable as cash, if not even more. This requires close consultation with all stakeholders and innovative designs. Firming up the choices and ensuring an early rollout would require that the central bank stays abreast of the technological and design choices made across the globe and suitably tweak them to meet the requirements of the Indian economy.

An online fight where children need to be saved

Context: Recently, the Central Bureau of Investigation (CBI) conducted a pan-India operation, “Megh Chakra”, against the online circulation and sharing of Child Sexual Abusive Material (CSAM).

  • Similarly, in 2021, the CBI launched “Operation Carbon”.

Child Pornography in India

  • In India, though viewing adult pornography in private is not an offence; seeking, browsing, downloading or exchanging child pornography is an offence punishable under the IT Act.
  • As the public reporting of circulation of online CSAM is very low and there is no system of automatic electronic monitoring, India’s enforcement agencies are largely dependent on foreign agencies for the requisite information.
Tackling of CSAM worldwideIn American: A programme called CyberTipline is operated for public and electronic service providers (ESPs) to report instances of suspected child sexual exploitation.In the UK: The Internet Watch Foundation (IWF), a non-profit organisation, ensures a safe online environment for users with a particular focus on CSAM, includes disrupting the availability of CSAM and deleting such content hosted in the U.K.INHOPE: It is a global network of 50 hotlines (46 member countries).It provides secure IT infrastructure, ICCAM (I- “See” (c)-Child-Abuse-Material) hosted by Interpol, and facilitates the exchange of CSAM reports between hotlines and law enforcement agencies.ICCAM: A tool to facilitate image/video hashing/fingerprinting and reduce the number of duplicate investigations.

Government of India’s Initiatives

  • In Shreya Singhal (2015), SC read down Section 79(3)(b) of the IT Act to mean that the Internet Service Provider (ISP), only upon receiving actual knowledge of the court order or on being notified by the appropriate government, shall remove or disable access to illegal contents.
    • Thus, ISPs are exempted from the liability of any third-party information.
  • In the Kamlesh Vaswani (2013) case, the petitioner sought a complete ban on pornography. In pursuance to this, nine (domain) URLs were disabled which hosted contents in violation of the morality and decency clause of Article 19(2) of the Constitution.
  • India’s first online reporting portal (2016): It was launched by ‘Aarambh India’ (a Mumbai-based NGO), in partnership with the IWF.
    • Aim: To report images and videos of child abuse.
  • National cybercrime reporting portal (2018): It was launched by the Ministry of Home Affairs (MHA) for filing online complaints pertaining to child pornography and rape-gang rape.
  • In 2019, the National Crime Records Bureau (MHA) signed a MoU with the NCMEC to receive CyberTipline reports to facilitate action against those who upload or share CSAM in India.
  • According to a report of the International Centre for Missing and Exploited Children on “Child Sexual Abusive Material: Model Legislation & Global Review”, more than 30 countries now require mandatory reporting of CSAM by ISPs. Surprisingly, India also figures in this list, though, the law does not provide for such mandatory reporting.

Way Forward

  • Recommendations of the ad hoc Committee of the Rajya Sabha (2020)
    • On legislative front: Widening of the definition of ‘child pornography’ but also proactive monitoring, mandatory reporting and taking down or blocking CSAM by ISPs.
    • On technical front
      • Permit the break of end-to-end encryption,
      • Build partnership with industry to develop tools using artificial intelligence for dark-web investigations
      • Track identity of users engaged in crypto currency transactions to purchase child pornography online
      • Liaisoning with financial service companies to prevent online payments for purchasing child pornography
    • The Optional Protocol to the UN Convention on the Rights of the Child encourages state parties to establish liability of legal persons.
    • The Council of Europe’s Convention on Cybercrime and Convention on The Protection of Children against Sexual Exploitation and Sexual Abuse also requires member states to address the issue of corporate liability.
    • It is time India joins INHOPE and establishes its hotline to utilise Interpol’s secure IT infrastructure or collaborate with ISPs and financial companies by establishing an independent facility such as the IWF or NCMEC.


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