CBDC vs UPI: The Reserve Bank of India (RBI) on Wednesday addressed a press conference for the calendar year’s last Monetary Policy Committee (MPC) meeting. While the Central Bank hiked the repo rate by 35 basis points (bps) to 6.25 per cent, it also issued explanations on several aspects, including the concept of Central Bank Digital Currency (CBDC).
The e-rupee became a talk of the town as soon as the RBI decided to come up with its CBDC, both for retail and wholesale transactions. Even though both CBDC-R and CBDC-W have been launched in a gap of just one month, several doubts have been raised on its differences and similarity with Unified Payments Interface (UPI), its data security and other things.
Taking one of these points forward, RBI Governor Shaktikanta Das addressed the audience and issued clarifications on the ‘CBDC vs UPI’ debate, while asserting that the e-rupee is different from UPI, unlike the popular opinion.
CBDC vs UPI – The Difference As Per RBI Governor
As per National Payments Corporation of India (NPCI’s) official website, “UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.”
RBI Governor too, raised a similar point. He said that in case of a UPI transaction, the intermediation of a bank is involved. He explains with the help of an example, “When I use UPI app, a message goes to my bank, the account gets debited and the money is transferred to the recipient’s account, where it gets credited – all with the intermediation of the bank.”
However, in case of CBDC (e-rupee in this case), Das says that it is very similar to paper currency. He explains, “Say you withdraw Rs 1,000 notes and keep them in your purse. Now, you have to go to the shop and pay Rs 500, so, you take it out and pay. Even in CDBC, you withdraw digital currency and keep it in your wallet which is basically your mobile phone. So, when you go to make the payment in a shop or to another individual, it will go from your wallet to his wallet, but without the intermediation of the bank.
In a nutshell, the primary difference between CBDC and UPI involves the role of a bank. While the former is a direct way of transaction between parties, without a bank, the latter involves the participation of a bank as an intermediary.
In the post-MPC meet press conference, the RBI Governor also said that at this point, the CBDC is on trial basis and in the near future, there might be several challenges as well. However, the central bank affirmed its willingness to deal with any upcoming challenges with regards to CBDC or e-rupee.