The Reserve Bank of India is running a pilot project on a digital form of the e-rupee since December 1. According to newspaper reports, the response has been tepid. This is not surprising. New ideas take time, and most unique ideas never catch on. Which of these will be the case with the e-rupee remains to be seen, but one can make an educated guess. Please note that I'm refraining from using the common phrase 'digital currency' because the RBI has clarified that the e-rupee is the same currency, just issued in a new, digital form.
So why do people use cash? Understand the prospects of a digital currency in India if one breaks down the reasons for using cash. We all know all this, but it's helpful to articulate it.
For small transactions, up to a few thousand rupees, using cash is convenient. You don't need any paraphernalia like a chequebook or a smartphone. You don't need internet connectivity. You do not even need to be particularly educated. For a certain part of the population, these characteristics are irreplaceable, and that closes the issue. Otherwise, many people have converted from cash to UPI or wallets for small transactions, but I sense that any further shift will be incremental. Around me, I can see that those still holding out have some reason for doing so other than simple inertia. Many holdouts have unaccounted cash incomes and will shift only when they are otherwise forced to go legit.
For large transactions, using cash is more and more complex, but these people still do it for reasons we all know. For the same reasons, cash is also used as storage apart from transactions, and the story there is the same.
None of the above usages of paper cash will shift to the e-rupee. For small transactions, those who are not tech-savvy, older people, those who cannot afford smartphones, or are not educated enough to use digital wallets, and UPI are not going to use the e-rupee for the exact same reasons. Those people need physical money, money they can feel in their hands and count out. Digital wallets, UPI and e-rupee, are all the same to them.
As for those who need anonymity and secrecy, the case is non-existent. I know that the RBI has made some noises about how the e-rupee can/will be anonymous but let's be serious here.
Someone dealing in large quantities of paper cash will laugh if you start talking about the RBI's promise of anonymity, so let's not even begin that discussion.
Several advantages of the e-rupee vis-a-vis UPI have been enumerated in various fora. For example, the e-rupee does not need bank intermediation. Or, at least, in theory, it can be used without bank intermediation. To see how, one can look at how people can use cryptocurrencies directly, which was, in fact, the sole original use case of crypto. They can transfer the currency over a network directly from one crypto wallet to another. Of course, these wallets have a lot of security, backup and redundancy requirements if they have to be used safely. Storing and transferring electronic cash safely without intermediaries is a cumbersome and expensive process, and it's hard to see it being mapped to e-rupee usage. For everyday use by individuals, having a trusted, regulated intermediary is a good thing and not something to avoid.
At this point in time, the e-rupee looks like a solution looking for a problem. Those who want digital convenience can use wallets and UPI, while those who can not or will not use the e-rupee for whatever reasons already have to stay with paper cash. Of course, it's still early days. Some interesting use for the e-rupee may still come up.
Suggested read: How is e-RUPI different from UPI?
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