Q.Read the following text carefully : "After setting up a working group to study the possibility of a Central Bank Digital Currency (CBDC) in India in 2020, the RBI revealed a concept note on digital rupee (e-Rupee) on 7th October, 2022." "The e-Rupee will provide an additional option to the currency available forms of money. It is substantially not different from bank notes, but being digital it is likely to be easier, faster and cheaper." RBI said that it broadly defines CBDC as the legal tender issued by a central bank in a digital form. It is akin to paper currency in a different form. On the basis of the above text and common understanding, answer the following questions : (3+1=4)

The text clearly points to the central bank's role in issuing currency. The RBI, as India's central bank, is the sole authority with the right to issue currency — whether physical banknotes or, as described here, a digital form called the e-Rupee. This function is called the monopoly of note issue. By introducing a Central Bank Digital Currency (CBDC), the RBI is simply extending this traditional function into the digital realm. The core idea is that the e-Rupee is legal tender, just like a banknote, but in a digital format. This ensures that the central bank's control over the money supply and its guarantee of the currency's value remain intact, even as payments go digital.

• Easier and faster transactions: Digital payments can be made instantly without the need for physical exchange or complex settlement processes. …

The passage from the RBI’s concept note on the digital rupee (e-Rupee) points directly to one of the most fundamental functions of a central bank: the monopoly of note issue. In any modern economy, the central bank — in India’s case, the Reserve Bank of India — is the sole authority authorised to issue currency. This power ensures uniformity, public confidence, and control over the total money supply. The text makes this clear by stating that the e-Rupee is “legal tender issued by a central bank in a digital form” and is “akin to paper currency in a different form.” So, the function being performed here is the creation and regulation of the nation’s official money, now extended into the digital realm.

Why does this matter? Historically, the central bank’s monopoly over currency issuance prevents private entities from creating money and destabilising the economy. By issuing a CBDC, the RBI is not creating a new kind of money — it is simply offering the same sovereign-backed rupee in a digital format. This is a natural evolution, not a revolution. The RBI’s working group studied the possibility since 2020, and the concept note of October 2022 laid out the vision. The key point is that the e-Rupee is a direct liability of the central bank, just like a banknote, and therefore carries zero credit risk — unlike a deposit in a commercial bank.

Now, turning to the advantages of the digital rupee mentioned in the text, the RBI itself highlights three clear benefits: it is easier, faster, and cheaper than using physical cash or even some existing digital payment methods. Let us expand on two of these.

First, faster and cheaper transactions. Physical cash requires printing, storage, transportation, and security — all of which are costly and time-consuming. Digital payments through banks often involve multiple intermediaries (like payment gateways and settlement systems), which can add delays and fees. The e-Rupee, being a direct digital claim on the central bank, can settle transactions instantly between two parties without needing a bank in the middle. This reduces transaction costs for businesses and individuals, especially for small-value payments. …