What is a Digital Rupee?

On 1st Dec, RBI launched the first pilot of retail digital Rupee (e₹-R) in select cities with a closed user group of individuals and merchants. In this newsletter we would discuss the salient features of digital Rupee.

Digital Rupee or e₹ is a centrally backed digital currency (CBDC). In other words, it is just like cash (currency notes) but in digital form. e₹ would be in the form of a digital token that represents legal tender. e₹ would have the same denomination as paper currency and coins in circulation. This means for a balance of Rs 600 you would hold eR in one of the possible combinations. E.g. – 500*1+100*1, 100*6, 200*3, 500*1+50*2 …etc. The digital wallet of the participating banks (four as of now) would allow the user to choose the denominations. Just like cash, e₹ would not earn any interest and can be converted to other forms of money such as bank deposits. Digital Rupee will be distributed through banks and accessed through a digital wallet.

The most obvious question which arises is how is e₹ in practical terms any way different from the money sitting in our UPI digital wallets which we seamlessly transfer either to peers or transact with merchants?

The key difference for e₹ is its ‘settlement finality’. In simple words, if I give cash to enable a transaction with you, it is complete then and there itself. On the other hand, if money is moved through cheques/NEFT/UPI etc, the final settlement is done at the backend by the corresponding banks. Once, I have transferred digital Rupee to you, the transaction is settled just like cash.

There are a few advantages often quoted for CBDRs. First, it may lead to reduction in currency management costs as borne by the central bank. Printing, safekeeping, transporting, issuing currency notes is an operationally complex exercise fraught with safety risks. Digital currency eliminates a lot of steps as only a unique token is to be generated digitally.

Second, is the concept of ‘programmable money’. As of now a currency holder can use the cash in any way he wants. I can either buy medicines or a lottery ticket. On the other hand, digital rupee can be programmed to be used for a limited set of transactions. The argument made is of better targeting of government spending as per the intended purpose.

Third, from the liquidity risk point of view, e₹ would be safer from bank deposits as in case the bank goes bust, only the insured portion deposit amount is statutorily made available to the depositor but since e₹ are digital cash, they have no such risk.

Any advantage should be weighed against the potential of its misuse. It is still a long way for digital transactions to be as ubiquitous as cash transactions, since a substantial portion of the Indian population is still new to it.

The second likely risk is the security of digital transactions and loss of anonymity. Big business and Government inevitably emphasize on centralised systems for want of greater efficiency and control respectively. This is often achieved at the expense of sacrificing individual privacy and autonomy. The biggest advantage of physical cash is its anonymity, whereas any digital transaction is bound to leave a trail. If in long term, digital Rupee replaces physical cash, it leads to increased cybersecurity risk for users.

It would be interesting to see how any ecosystem of new functionalities emerge around the eR, a good opportunity for startups to make the most of it.

Ecosystem Ventures This Week

Key Highlights – Clients

We are delighted to share that we participated in the investment round of Logistics-focused SaaS-based startup “Intugine” that has raised $2.3 Mn (INR 19 Cr) in Pre-Series A funding led by Mela Ventures.

Please click here to read more about Intugine, a multi-modal visibility platform that helps the world’s largest enterprises to build resilience in their supply chains, which has helped 100+ Manufacturers, 3rd-Party Logistics, and E-Commerce companies in the past 4 years, including Flipkart, Xiaomi, Philips, Ultratech Cements, Arvind Fashion, Kuehne + Nagel, SpotOn Logistics.

Startup Funding Summary

KreditBee, Bengaluru-based fintech startup, has raised $80 Mn in Series D funding from MUFG Bank, Premji Invest, Motilal Oswal Alternates, NewQuest Capital and Mirae Asset Ventures – Read More

DeHaat, Patna-based agritech startup, has raised $60 Mn in Series E funding from Sofina Ventures, Temasek, Prosus Ventures, RTP Global India and Lightrock India – Read More

Prismforce, Mumbai-based vertical SaaS platform, has raised $14 Mn in Series A funding from Sequoia Capital India and other HNIs – Read More

MoooFarm, Gurugram-based agritech startup, has raised $13 Mn in Series A funding from Aavishkaar Capital, Accel Partners, Aditya Birla Ventures, Rockstart, Navus Ventures and Alteria Capital – Read More

Blox, Mumbai-based proptech startup, has raised $12 Mn in Series A funding from Kunal Shah and other HNIs – Read More

M&A Snippets

Bengaluru-based biosimilars manufacturing unit Biocon has acquired US-based pharmaceutical company Viatris’ global biosimilars business for $3 Bn – Read More

Hyderabad-based generic injectables maker Gland Pharma will acquire France-based pharma company Cenexi for $124 Mn – Read More

Bengaluru-based manufacturing services marketplace Zetwerk has acquired US-based manufacturing services company Unimacts for $39 Mn – Read More

Kolhapur-based FMCG enterprises Ghodawat Consumer has acquired Mumbai-based beverage startup Coolberg for an undisclosed amount – Read More

Bengaluru-based edtech startup Simplilearn has acquired US-based edtech company Fullstack Academy for an undisclosed amount – Read More