India has made significant progress in digital payments, with millions of people using UPI to transfer money and make purchases every day. Now, the country is exploring another form of digital money — the e-rupee. Issued by the Reserve Bank of India (RBI), the digital rupee is designed to work like physical cash but in electronic form.
The e-rupee has also found applications beyond everyday payments. The government is using it to transfer interest subsidies to eligible students under the PM-Vidyalaxmi scheme, bringing digital currency into the higher education sector. But what exactly is the e-rupee, why was it introduced when UPI is already widely used, and how could it affect the way people use money?
What is e-rupee?
The e-rupee, also known as the digital rupee (e₹), is India's Central Bank Digital Currency (CBDC). It is the digital form of the Indian rupee, issued by the RBI. Just like a physical currency note, it is legal tender and has the same value as the regular rupee. One digital rupee is equal to one physical rupee.
Unlike money stored in a bank account, the e-rupee is a direct liability of the RBI, which means it is issued and backed by the country's central bank. Users can hold it in a digital wallet provided by participating banks and authorised non-bank service providers. They can use it to send or receive money and make payments.
The e-rupee is not the same as cryptocurrency. Cryptocurrencies such as Bitcoin are privately created digital assets whose values can change sharply. The digital rupee, on the other hand, is issued by the RBI and maintains a fixed value against the Indian rupee.
Why did India introduce a digital currency?
The RBI introduced the digital rupee to provide an additional form of money alongside physical cash and bank deposits. The central bank has identified several possible benefits, including reducing the cost of managing physical currency, improving payment systems, supporting financial inclusion and making cross-border transactions more efficient.
The digital rupee is also intended to encourage innovation in the financial sector and provide a sovereign alternative to privately issued digital currencies.
The RBI began its wholesale digital rupee pilot on November 1, 2022, followed by the retail pilot on December 1, 2022. While the wholesale version is meant for financial institutions and transactions involving government securities and other financial instruments, the retail version is designed for use by individuals and merchants.
How does e-rupee work?
The RBI issues the digital currency and distributes it through participating banks and authorised non-bank providers. Users can download an e-rupee application, register and create a digital wallet. They can then transfer money from their bank account into the wallet and hold it as digital rupees.
The digital rupees can be transferred to another e-rupee wallet or used to make payments at participating merchant outlets. Users can also convert their digital rupee balance back into money in their bank accounts.
The e-rupee is available in denominations similar to physical currency notes and coins. Unlike bank deposits, the balance held in an e-rupee wallet does not earn interest, just like physical cash.
e-rupee vs UPI vs cryptocurrency: What is the difference?
| Feature | E-rupee | UPI | Cryptocurrency |
|---|---|---|---|
| What is it? | Digital form of currency | Payment system | Digital asset |
| Issued or operated by | RBI | NPCI operates the system | Private creators or networks |
| Value | Equal to the Indian rupee | Depends on the money being transferred | Can fluctuate |
| Backing | Liability of RBI | Generally linked to bank deposits | No central bank backing |
| Main purpose | Digital form of cash | Transfer money between accounts | Digital asset transactions |
The simplest way to understand the difference is that UPI is a way to transfer money, while e-rupee is money in digital form.
For example, when a person pays Rs 500 through UPI, the money is generally transferred from one bank account to another. In an e-rupee transaction between two digital rupee wallets, the currency moves directly between the wallets and is settled without passing through the users' bank accounts.
Interestingly, e-rupee wallets can also scan compatible UPI QR codes, allowing users to make payments at merchant outlets that accept them.
What are the benefits of e-rupee?
Trust and security: It is issued by the RBI and represents a direct liability of the central bank.
Faster settlement: Transactions between e-rupee wallets are settled instantly.
Convenience: Users can hold digital currency separately from their bank deposits and use it for payments.
Programmability: Funds can be restricted to specific purposes, locations or categories of merchants.
Financial inclusion: It could support the delivery of government benefits and help improve access to digital financial services
Challenges not to be ignored
Despite its potential, the digital rupee faces several challenges. UPI is already widely accepted by consumers and merchants, making it difficult to convince people to adopt another payment option.
Merchant acceptance, public awareness and ease of use will also play an important role in its adoption. Privacy and cybersecurity are other concerns, as users need to know how their transaction information is protected and what happens if their mobile phones or digital wallets are compromised.
There is also the question of the digital divide. People without smartphones, reliable internet access or basic digital skills may find it difficult to use the system. Although the RBI is exploring offline solutions, these are not yet a universally available facility.
What does e-rupee mean for students and education?
One of the important applications of digital currency in the education sector is the PM-Vidyalaxmi scheme, launched by the Union government in November 2024. The scheme aims to provide financial support to students pursuing higher education through education loans and interest subsidies. Under the scheme, eligible students with an annual family income of up to Rs 8 lakh can receive a 3 per cent interest subsidy on education loans of up to Rs 10 lakh, subject to the prescribed conditions.
The interest subsidy is transferred through an e-voucher or programmable CBDC wallet. Once the subsidy is credited to the student's digital wallet, the student can opt to redeem it. The amount is then transferred directly to the education loan account through Direct Benefit Transfer (DBT).
According to the Ministry of Education, 1,12,817 collateral-free and guarantor-free education loans had been sanctioned under PM-Vidyalaxmi as of July 21, 2026, with the total sanctioned amount standing at Rs 15,634.78 crore. However, this figure represents education loans sanctioned under the scheme, not the number of students who received CBDC-based interest subsidies.
The technology could also be explored for other education-related benefits, such as scholarships, research grants and student assistance programmes. However, these should be seen as possible future applications rather than existing nationwide services.
As digital financial systems evolve, students will also need to understand how digital currency works, how it differs from ordinary digital payments and how to use financial technology safely.
Ahead....
The e-rupee is still being tested through retail and wholesale pilot programmes. The RBI is putting its best foot forward to explore new applications, including programmable payments, offline transactions and wider participation by banks and non-bank service providers. Its success will depend on whether it can offer clear benefits to users beyond those already provided by UPI and other digital payment systems. For students and young people, understanding the digital rupee could also become an important part of financial literacy as India explores the future of money.