RBI is piloting an eRupee. Here's a fun read about how this plays into the banking system

[demorah39]

@angelhinson

Is e-rupee another parallel currency or will it completely replace cash?

There are no indications that it will replace cash entirely at the moment. But any comments here would just be speculation. If the RBI feels that the eRupee is robust enough and well received by everyone, sure, it could replace cash going in its entirety (but no one knows right now!)

If both coexist, when cash is converted to e-rupee, do they burn\destroy same amount of rupee?

Do you mean physical cash or a bank deposit? If physical cash is converted, it will first become a bank deposit and then an eRupee. So it's like first depositing cash into a bank and then withdrawing it again. Both the note that you deposited and the note that you withdrew were already "manufactured", they just got rearranged b/w the bank and its customers.

Who covers the cost of printing\mining e-rupee and the cost of the infra to keep the wallets and transactions running ? Will there be a transaction fee?

Cost will of course be borne by the RBI. Right now the RBI bears the cost of printing physical money so it's the equivalent. Don't think there will be a transaction fee (there is none with cash) but again no one knows what it will be in the future. I can foresee an initial conversion fee (from bank deposit to eRupee and then none afterwards).

 

[how2101]

@demorah39 This could come in handy for NRIs. Currently, if your Indian bank accounts are linked to foreign numbers, none of the digital payment options are available.

If the money is stored in an eWallet, either locally or on cloud, it's ready to spend without any limitations.

 

[demorah39]

@how2101 Yeah, that's true. But IMO this is a bit of a user experience problem on the side of banks versus a real application for CBDC.

 

[resjudicata]

@demorah39 It’s a good explainer about eRupee or CBDC.

Question is not if it can be done, Cryptos have already done it, but should it be done? IMO, as a citizen I would like to stay away and stick to cash because I can foresee a trap will be built over the years by “governments”.

Extra read:
And it’s not going to be capitalist trap but an authoritarian one, India lacks the sophistication of being a minister and a leader. Our first take on the technology has been always about abusing it and not enforcing constitutional rights.

And even if we remove every societal issue out of this conversation, and just stick to financial system. How would fractional banking that we know of will work, debt out of thin air is at the center of banking? The role will be taken away from other banks for RBI or the banks will just become an institution of lending, NBFC sorts?

 

[hammersmyth]

@demorah39 It is a very good article OP. I Myself tech and financial saavy but till now couldn't understand erupee. This article got everything that is needed

 

[andega]

@demorah39 This is a bad direction for money to go. As much as I like the convenience of electronic access to my money, I think this will lead to a lot more government overarch and control.

Also here’s another perspective:

https://twitter.com/i/web/status/1494444624630403083

 

[heliumskylark]

@andega Yes, it sucks in terms of anonymity and the government will always try to invade people's privacy for greater control over the people. This is why physical cash also needs to stay alongside eRupee. I doubt physical cash will ever go away because it is very difficult to provide internet connectivity to every nook and corner of the country. 4G coverage is still limited in rural areas.

 

[andega]

@heliumskylark That is a good point. It’s definitely going to be an alternative form of money. Atleast, for now.

However, this feels like there’s no real advantage to the end consumer with this. It’s just setting a precedent for the some point in the future to switch to this exclusively.

 

[heliumskylark]

@andega I think the biggest advantage is that even people without bank accounts can now do digital transactions. I think we need to start thinking of banks as lending institutions. We shouldn't need their help just to perform the basic function of currency which is to enable transfer of goods and services. Only people who need loans or wants interest should have a bank account. Everyone else should be able to carry on with their lives with just cash in the wallet on their phone.

 

[chepchep]

@heliumskylark Who doesnt want interest?

 

[dayvay]

@demorah39 I was having a conversion with a CTO of a bank. He said that in order to move people to digital wallet, there will be incentives on loan payment.

Let's say that you take a loan from a bank with a 10 % interest rate. Now if you use your e wallet for paying the loan, you will have to pay at a 0.25 or 0.35 % less interest rate.

 

[demorah39]

@dayvay Interesting -- do share this post with them if you can. I'd really love inputs from people within the financial industry.

It's always possible that such incentives can come into the picture temporarily to drive adoption, but don't think anyone knows right now. Or if it would make sense for banks to do this long-term. Banks don't have much to gain by doing this, people will first convert their deposits to eRupee and then pay the bank back with the same eRupee. Looks like an unnecessary hoop to jump.

 

[dayvay]

@demorah39 What the CTO said is that the goal of the current government is to be completely cashless economy.

Also, printing currency has a cost. They want to eliminate it.

Intially, they will allow incentives, but once there is widespread adoption they will remove them like JIO did.

 

[chepchep]

@dayvay how and why?

if I pay physical cash for paying loan, do I pay less?

 

[unprofitableservant]

@demorah39 I want to buy my apple juice without a paper trail to it. Without the govt, bank, or rbi knowing about it.

 

[naoiwi]

@demorah39 I guess the eRupee and physical Rupee can co-exist. Just like UPI and cash are. People in our country are extra cautious when it comes to money. They will not stop depositing money in banks albeit a lesser sum if they opt for eRupee. In all this, cash will always exist. No doubt about that.

 

[jacknife]

@demorah39 Loved this article in terms of relationship between the bank, customer/citizen and RBI. Never thought of it in terms of who owes and to whom. And genuinely interested in the line of thought where currency and it's pledge is a relation between citizen and RBI with Bank not being an intermediary with associated risk of lending instead of just storing.

But, I fail to understand why cash is associated with tax evasion. If demonetization was any indicator, storing cash like Scrooge McDuck is hardly any efficient.

These deals tend to be in kind. For e.g. property deals or through offshore tax heavens.

If anything, cash is a tool which can help you avoid persecution (political,racial or religious). Imagine 71 emergency where could potentially wipe off the ledger from wallet of political adversary.

I would ask you to watch a movie 'Resistance Banker' to see how cash paved a way to resist Nazi occupation in Netherlands.(Dramatized for movie but basics still hold)

I have a very superficial understanding of economics. But my common sense tells me cash should not be demonized to the extent it is.
Happy to read and understand more and build my opinion.

Any recommendations on book on economics for dummies?

 

[demorah39]

@jacknife Thank you! I'm glad my post made you think (and do hope you've subscribed to my substack)

Demonetisation failed to stop black money, no doubt, but it doesn't mean that people don't use cash for tax evasion. Instead, what demonetisation did was to route all that money back into the system through some way or another. That's how a ton of jan dhan accounts which had no deposits for years found some money just below the tax limit when DeMo happened. (There are other ways as well, of course, like donating to a political party and claiming an exemption, only to have the money routed back to you in new notes.)

Cash definitely has its benefits, especially when it comes to maintaining privacy and a fallback in case the government goes rogue. There's a constant fight and a constant push and pull when it comes to these things (should we prioritise higher tax collections but risk our privacy in case things go south?) and there is no right answer. It's up to the government and citizens to make up their mind about what they hold more dear.

 

[maeve]

@demorah39 From what I had understood e₹ is just a digital form of the printed currency.

When we deposit money in a bank the bank has to keep the physical currency in their safe.

In the case of e₹ there is no physical money kept in safe.

UPI is currently free because the government pays for it

In the case of UPI and other inter bank transfer systems like neft, rtgs etc. Eventually the bank has to settle the diffrence. Op mentioned that the difference will eventually become zero after lots of transfer. How long do you think that will take. A day, a month, a year ...Banks need to physically meet and settle the difference. Which means the bank has to physical transfer the difference. This means more expenses.

If both banks have a e₹ wallet . They just need to transfer the difference as both wallets are with the rbi which maker the transfer an intra bank transfer.

e₹ in a digital wallet is the same as physical money in your physical wallet. You won't get intrest for both. If you want intrest you need to lend it to a bank. Bank can accept deposit in the form of e₹ or physical currency.

e₹ is not that beneficial to an individual, it beneficial to an organisation,banks, merchant etc that need to settle their bills

I belive we will have both e₹ and physical ₹ in the future

 

[chepchep]

@maeve eRupee wallet has limit of 1 lac for individuals. Dont know if there is a limit for banks.