BharatNotes Why this chapter matters for UPSC: The evolution of money bridges GS1 (ancient Indian history — Mauryan coins, Gupta coinage, Sher Shah Suri's Rupiya) and GS3 (Indian economy — RBI, demonetisation, digital payments, financial inclusion). Prelims test facts about India's monetary milestones and RBI's functions. Mains links monetary policy to financial inclusion, economic formalisation, and digital public infrastructure.
PART 1 — Quick Reference Tables
| Stage of Money Evolution | Examples | Key Property |
|---|---|---|
| Commodity money | Grain, cattle, shells, salt | Intrinsic use value; not standardised |
| Metallic money | Copper, silver, gold coins | Standardised weight and purity; durable |
| Representative / paper money | Bank of England notes (1694); backed by gold | Convenience; redeemable for metal |
| Fiat money | Modern currency notes | Value by government decree; not backed by commodity |
| Digital money | UPI, CBDC (e-₹) | Dematerialised; real-time transfer |
| India's Monetary History | Period | Key Fact |
|---|---|---|
| Punch-marked coins (Karshapana) | ~6th century BCE, Mauryan era | Among India's earliest metallic coins; silver and copper |
| Gupta gold coins | 4th–6th century CE | High purity; artistic; depict rulers and deities |
| Muhammad bin Tughlaq token currency | 1329–30 CE | Leather/brass replacing gold → public rejected → cancelled; massive loss |
| Sher Shah Suri — Rupiya | 1540–45 CE | Silver coin; 40 copper dams = 1 Rupiya; basis of modern Rupee |
| Reserve Bank of India established | April 1, 1935 | Central bank; nationalised 1949 |
| Demonetisation | November 8, 2016 | ₹500 and ₹1,000 notes withdrawn; ~₹15.44 lakh crore returned |
| UPI launch | April 2016 | NPCI-managed; 185.9 billion transactions in FY2024-25 (RBI Annual Report, May 2025) |
| e-₹ / CBDC pilot | December 2022 | Digital Rupee; RBI-issued |
| Functions of Money | Description |
|---|---|
| Medium of exchange | Solves double coincidence of wants problem |
| Unit of account | Common measure of value for all goods and services |
| Store of value | Purchasing power preserved over time |
| Standard of deferred payment | Enables loans, credit, contracts across time |
PART 2 — Detailed Notes
The Barter System and Its Limits
Before money, communities exchanged goods directly. This barter system works in small, close-knit communities where everyone knows each other and produces different things. A farmer might trade rice for a weaver's cloth.
Double Coincidence of Wants: The central problem of barter — for an exchange to happen, I must have what you want AND you must have what I want, at the same time and in the right quantities. Example: I have surplus rice and want a cow. I must find someone who has a cow to spare AND wants rice, not fish or cloth. As the economy grows and specialises, this becomes near-impossible.
Other barter problems: Indivisibility (you cannot give half a live cow as change); No store of value (perishable goods cannot be saved); No common measure of value (how many fish = one cow?); Difficulty of deferred payment (how do you repay a loan in future cows?).
Evolution of Money
Stage 1 — Commodity Money: Societies selected specific goods that everyone valued as a medium of exchange. Cattle were used in pastoral societies; grain in agricultural ones; cowrie shells (widely used in ancient India, Africa, and China — shells from the Maldives traded across the Indian Ocean world); salt (the word "salary" derives from Latin "salarium" — payment to Roman soldiers in salt or money to buy salt).
Stage 2 — Metallic Money (Coins): Metals — copper, silver, gold — were shaped into standardised coins of known weight and purity, stamped by a ruler's authority. This solved indivisibility (coins can be subdivided), portability, and durability. India's punch-marked coins (Karshapana) date to approximately the 6th century BCE and were in wide use during the Mauryan period. Ancient Indian texts refer to Nishka (gold ornament used as currency), Satamana (silver), and Karshapana (copper/silver).
UPSC GS1 — India's Monetary History:
Gupta gold coins (4th–6th century CE) are considered among the finest ancient coins in the world — high purity gold, artistically depicting rulers engaged in activities (hunting, playing music), deities, and symbols. They testify to Gupta-era prosperity.
Muhammad bin Tughlaq's Token Currency Experiment (1329–30 CE): Facing treasury shortages, Tughlaq introduced bronze/brass coins as legal tender at the face value of gold coins. The public — and especially foreign merchants — refused to accept them, using them to pay taxes while hoarding gold. Forged tokens flooded the market. The experiment failed catastrophically; Tughlaq was forced to cancel it and accept the tokens back for gold, suffering massive losses. This is an early example of the importance of public trust in currency.
Sher Shah Suri's Rupiya (1540–45 CE): Sher Shah reformed the monetary system with the silver Rupiya (weighing ~178 grains of silver), subdivided into 40 copper Dams. The Rupiya became the standard currency of the Mughal Empire and is the direct ancestor of today's Indian Rupee (₹). The word "Rupee" derives from Sanskrit Rūpya (silver).
Stage 3 — Paper Money / Representative Money: Carrying large quantities of metal was dangerous. Goldsmiths and merchants began issuing receipts ("I owe you X gold") that could be traded as payment. The Bank of England (established 1694) began issuing standardised paper notes redeemable for gold — the foundation of modern banking. Paper money was "representative" — it represented a claim on metal stored in a vault.
Stage 4 — Fiat Money: Modern currencies are fiat money — their value rests not on any commodity backing but on government decree (fiat = "let it be so" in Latin) and public trust. The USA abandoned the gold standard in 1971 (Nixon Shock). Indian Rupees are fiat money — RBI issues them, and the government guarantees their legal tender status (the promise printed on every note: "I promise to pay the bearer a sum of ₹X" — the Governor of RBI's signature).
Stage 5 — Digital Money: Money increasingly exists as electronic records.
UPI (Unified Payments Interface): A real-time payment system developed by the National Payments Corporation of India (NPCI) under the Reserve Bank of India. Launched in April 2016, UPI allows instant bank-to-bank transfers using a mobile app and a Virtual Payment Address (VPA like name@bank). In FY2024-25, UPI processed approximately 185.9 billion transactions worth ₹260.6 lakh crore (RBI Annual Report, May 2025) — making India the world's leading country in real-time digital payments volume. UPI is now available in several countries (Singapore, France, UAE, Nepal, Sri Lanka, Mauritius, Bhutan) — a significant example of Indian digital public infrastructure (DPI) going global.
e-₹ (Digital Rupee / CBDC): The Reserve Bank of India launched a pilot of its Central Bank Digital Currency (CBDC) in December 2022. Unlike UPI (which moves existing bank money), the e-₹ is issued directly by the RBI — equivalent to a digital banknote. This is still in pilot stage.
India's Banking System
Reserve Bank of India (RBI): Established April 1, 1935 (under RBI Act 1934); nationalised on January 1, 1949. RBI is India's central bank: it issues currency (all notes except ₹1 coin — which is issued by the Ministry of Finance); manages monetary policy; regulates commercial banks; manages foreign exchange reserves; serves as banker to the government.
UPSC GS3 — Demonetisation (November 8, 2016):
PM Narendra Modi announced that ₹500 and ₹1,000 notes — which constituted ~86% of currency in circulation — would cease to be legal tender at midnight on November 8, 2016. Citizens had to deposit old notes in banks (within a deadline) or exchange them.
Key facts: Of the ₹15.71 lakh crore in ₹500 and ₹1,000 notes outstanding, approximately ₹15.44 lakh crore (98.3%) was returned to the banking system — meaning the anticipated destruction of "black money" (unaccounted cash) did not occur on the expected scale. Short-term impacts: severe cash shortage, long queues at banks and ATMs, GDP growth slowdown, informal sector distress (daily wage workers, small traders). Claimed long-term benefits: boost to digital payments, increased tax filers, formalisation of the economy. Economists remain sharply divided on the net cost-benefit outcome. The Supreme Court upheld the demonetisation decision in January 2023 (4:1 majority).
Jan Dhan Yojana (PMJDY): Launched August 2014. Financial inclusion scheme — zero-balance bank accounts for unbanked households, with RuPay debit cards and overdraft facility. Over 56 crore accounts opened with approximately ₹2.75 lakh crore in deposits (as of 2025; PMJDY dashboard). Combined with Aadhaar and mobile phones, Jan Dhan forms India's JAM Trinity for direct benefit transfer.
[Additional] 4a. UPI Global Expansion and India Stack as Digital Public Infrastructure
The chapter covers UPI domestically (185.9 billion FY2024-25 transactions) but does not explain India's global DPI (Digital Public Infrastructure) expansion. By May 2025, UPI is accepted in 9+ countries across Asia, Europe, and the Middle East, with Nepal and Trinidad & Tobago actually building their own domestic payment systems using the UPI technology stack. The G20 (2023, India's presidency) formally recognized DPI as an SDG accelerator, and IMF identified UPI as handling ~49% of global real-time payments by volume.
Key Terms — India Stack / UPI Global:
| Term | Meaning |
|---|---|
| India Stack | The set of open APIs built on Aadhaar (identity), UPI (payments), and Account Aggregator/DEPA (data) — collectively India's digital public infrastructure; often extended to include DigiLocker, ABDM, ONDC, ULIP |
| NPCI International Payments Limited (NIPL) | Established April 3, 2020; wholly owned subsidiary of NPCI; mandate = deploy UPI and RuPay outside India, and export the UPI technology for other countries' sovereign domestic payment systems |
| Digital Public Infrastructure (DPI) | Government-built or government-mandated shared digital infrastructure accessible as a public good — like roads or electricity grids but in the digital realm; G20 2023 defined DPI as an SDG accelerator |
| PayNow-UPI Link | World's first bilateral real-time cross-border payment linkage — Singapore's PayNow integrated with India's UPI (live February 2023); Indian users can send money to Singapore without needing a forex transaction |
| Account Aggregator (DEPA) | Consent-based financial data-sharing framework; part of India Stack; allows banks/insurers to share customer financial data (with customer consent) for credit scoring, loan appraisal etc. |
[Additional] UPI International and India's DPI Exports (GS3 — Economy / GS2 — Governance):
UPI acceptance across the world (as of May 2025):
| Country | Year Live | Mode |
|---|---|---|
| Bhutan | 2021 | First country; BHIM app |
| UAE | 2021 | 60,000+ merchant QR codes |
| Singapore | 2023 | Bilateral PayNow-UPI link (February 2023) |
| France | 2024 | First European nation; tourist locations |
| Nepal | 2024 | Integrated with Fonepay national system |
| Mauritius | 2024 | UPI + RuPay |
| Sri Lanka | 2024 | Airports, tourist centres |
| Qatar | 2025 | Airports, malls, hospitality |
| Cyprus | 2025 | Second European nation (Eurobank Cyprus) |
Countries building their OWN UPI-stack domestic payment system (via NIPL):
| Country | Year | Details |
|---|---|---|
| Nepal | 2022 | First country to deploy UPI as a domestic P2P/P2M system (NIPL + Gateway Payment Service + Manam Infotech + Fonepay) |
| Trinidad and Tobago | 2024 | First Caribbean nation; NIPL + Ministry of Digital Transformation |
| Peru | 2024 | NIPL + Central Reserve Bank of Peru (BCRP) |
| Namibia | 2024 | NIPL + Bank of Namibia |
UPI transaction data:
- FY2024-25: 185.8 billion transactions worth ₹261 lakh crore (RBI Annual Report, May 2025)
- Growth: 41.7% YoY (from 131.1 billion in FY2023-24)
- Share of India's digital payment volume: 83.4% in FY25 (up from 79.4% in FY24)
- Global position: IMF identified UPI as handling approximately 49% of global real-time payment transaction volume
India Stack beyond UPI:
| Layer | DPI Component |
|---|---|
| Identity | Aadhaar (138.34 crore IDs issued) |
| Payments | UPI (NPCI), RuPay cards |
| Data/consent | Account Aggregator / DEPA |
| Documents | DigiLocker |
| Health | ABDM (Ayushman Bharat Digital Mission — health IDs) |
| Commerce | ONDC (Open Network for Digital Commerce) |
| Logistics | ULIP (Unified Logistics Interface Platform) |
| Education | DIKSHA |
International recognition:
- G20 2023 (India's Presidency): New Delhi Leaders' Declaration formally recognized DPI as a development accelerator; G20 Digital Ministers reached consensus: DPI as "accelerator of the Sustainable Development Goals (SDGs)"
- IMF (June 2025): Report identified India as a real-world case for treating digital identity, payments, and data-sharing like public infrastructure; cited UPI as the world's largest fast-payment system by volume
- World Bank: G20 Global Partnership for Financial Inclusion document lauded India's DPI as a decade-long achievement
UPSC synthesis: UPI Global + India Stack = GS3 economy + GS2 governance. Key exam facts: NPCI International (NIPL) established April 3 2020; 9+ countries accept UPI; Nepal, Trinidad & Tobago, Peru, Namibia = building their own UPI-stack domestic payment systems (via NIPL); Singapore = PayNow-UPI bilateral link February 2023; France = first European country 2024; UPI FY2024-25 = 185.8 billion transactions, ₹261 lakh crore, 41.7% growth; IMF = UPI is ~49% of global real-time payments; India Stack = Aadhaar + UPI + Account Aggregator (core 3 layers); G20 2023 = DPI recognized as SDG accelerator (India's presidency). Prelims trap: NPCI International ≠ NPCI (domestic); PayNow is Singapore's system (NOT India's); UPI share of India digital payments = 83.4% (FY25).
[Additional] 4b. Digital Rupee (e-₹) CBDC — Progress and Distinction from UPI
The chapter notes the e-₹ pilot launched December 2022 but provides no progress data. By March 2025, the e-₹ retail pilot has reached 60 lakh (6 million) users, ₹1,016.5 crore in circulation, 17 participating banks, and new features including offline payments and programmability. The key UPSC concept: CBDC is fundamentally different from UPI — UPI is a payment rail (moves bank money), while e-₹ IS money (RBI's direct liability), offering programmability that UPI cannot.
Key Terms — CBDC:
| Term | Meaning |
|---|---|
| CBDC (Central Bank Digital Currency) | Digital form of a nation's sovereign currency, issued and backed directly by the central bank; unlike bank deposits (liability of commercial banks), CBDC is a direct liability of the RBI — equivalent to a digital banknote |
| e-₹ (Digital Rupee) | India's CBDC; two variants: e₹-W (wholesale — for interbank settlement of government securities, launched November 1, 2022) and e₹-R (retail — for public use, launched December 1, 2022) |
| Programmable money | A feature unique to CBDC: digital tokens can be coded with conditions — spending only at specific merchants, for specific purposes (fuel, food, healthcare), within a time window, or in a geographic area; eliminates leakage in welfare delivery |
| Token-based settlement | CBDC uses token-based transfer (like passing a physical coin) — instant, final, no interbank reconciliation needed; unlike UPI which involves messaging between banks and NPCI |
| Offline capability | e-₹ is being piloted in offline mode (no internet needed) using NFC technology — unlike UPI which requires internet; enables financial inclusion in low-connectivity areas |
[Additional] Digital Rupee CBDC — Progress Data and Policy Significance (GS3 — Economy / Monetary Policy):
Timeline:
- Wholesale pilot (e₹-W): November 1, 2022 — 9 banks; settling secondary market government securities
- Retail pilot (e₹-R): December 1, 2022 — launched in Mumbai, Delhi, Bengaluru, Bhubaneswar; 4 banks initially
Progress (RBI Annual Report 2024-25, released May 2025):
| Metric | FY2022-23 | FY2023-24 | FY2024-25 (March 2025) |
|---|---|---|---|
| e₹ in circulation | ₹16.4 crore | ₹234 crore | ₹1,016.5 crore |
| Retail users | — | — | 60 lakh (6 million) |
| Participating banks | 4 → 13 | — | 17 banks |
| Non-bank distributors | No | No | Yes (MobiKwik, CRED, Yes Bank from January 2025) |
New features added in FY2024-25:
- Offline payments (NFC-based) — piloted; no internet required
- Programmable money — e-₹ tokens coded for specific purposes: fuel purchase, grocery, education, healthcare, travel; prevents misuse of welfare transfers
- Welfare delivery pilots — ~10 government welfare programs routing payments via e-₹ (e.g., Odisha's Subhadra Yojana components)
CBDC vs UPI — why both are needed:
| Dimension | UPI | e-₹ CBDC |
|---|---|---|
| Nature | Payment rail (moves bank deposits) | Digital currency (IS money itself) |
| Issuer | NPCI operates rails; RBI regulates | RBI is direct issuer |
| Liability | Commercial bank (deposit) | RBI (like physical cash) |
| Settlement | Interbank messaging via NPCI | Token transfer; instant; final |
| Bank account needed | Yes (both ends) | No (wallet-based) |
| Programmability | Not programmable | Programmable (purpose/time/location) |
| Offline | Not natively | Offline capable (NFC pilot) |
| Privacy | Fully traceable (linked to bank) | Cash-like (higher privacy) |
Current status: As of May 2026, e-₹ remains in the pilot phase — no announced date for full national rollout. RBI's stated approach is gradual expansion of use cases and user base. Total cumulative CBDC transactions are modest compared to UPI's daily volumes (UPI does ~16 billion transactions/month; e-₹ has 60 lakh users total).
RBI's rationale for CBDC alongside UPI:
- Cash replacement: Digital equivalent for those without bank accounts
- Programmable welfare: Eliminates subsidy leakage via purpose-bound spending conditions
- Cross-border settlement: Future potential to bypass SWIFT for international transactions
- Monetary sovereignty: Central bank money reduces systemic risk from commercial bank intermediaries
- Financial inclusion: Offline capability for low-connectivity areas
UPSC synthesis: CBDC e-₹ = GS3 economy + monetary policy. Key exam facts: e₹-W (wholesale) launched November 1 2022; e₹-R (retail) launched December 1 2022; 17 banks by March 2025; 60 lakh users; ₹1,016.5 crore in circulation (FY25); non-bank distributors from January 2025 (MobiKwik, CRED, Yes Bank); programmability = key feature (purpose-bound spending); offline via NFC = in pilot; CBDC is RBI's direct liability (unlike UPI which moves commercial bank deposits); CBDC still in pilot as of May 2026 (no full launch). Prelims trap: CBDC ≠ UPI; e₹-W launched BEFORE e₹-R (November 1 vs December 1 2022); RBI is issuer of e-₹ (NOT NPCI); ₹1 coin is Ministry of Finance (NOT RBI) — this old fact still tested.
[Additional] 4a. UPI Global Expansion and India Stack as Digital Public Infrastructure
The chapter covers UPI domestically (185.9 billion FY2024-25 transactions) but does not explain India's global DPI (Digital Public Infrastructure) expansion. By May 2025, UPI is accepted in 9+ countries across Asia, Europe, and the Middle East, with Nepal and Trinidad & Tobago actually building their own domestic payment systems using the UPI technology stack. The G20 (2023, India's presidency) formally recognized DPI as an SDG accelerator, and IMF identified UPI as handling ~49% of global real-time payments by volume.
Key Terms — India Stack / UPI Global:
| Term | Meaning |
|---|---|
| India Stack | The set of open APIs built on Aadhaar (identity), UPI (payments), and Account Aggregator/DEPA (data) — collectively India's digital public infrastructure; often extended to include DigiLocker, ABDM, ONDC, ULIP |
| NPCI International Payments Limited (NIPL) | Established April 3, 2020; wholly owned subsidiary of NPCI; mandate = deploy UPI and RuPay outside India, and export the UPI technology for other countries' sovereign domestic payment systems |
| Digital Public Infrastructure (DPI) | Government-built or government-mandated shared digital infrastructure accessible as a public good — like roads or electricity grids but in the digital realm; G20 2023 defined DPI as an SDG accelerator |
| PayNow-UPI Link | World's first bilateral real-time cross-border payment linkage — Singapore's PayNow integrated with India's UPI (live February 2023); Indian users can send money to Singapore without needing a forex transaction |
| Account Aggregator (DEPA) | Consent-based financial data-sharing framework; part of India Stack; allows banks/insurers to share customer financial data (with customer consent) for credit scoring, loan appraisal etc. |
[Additional] UPI International and India's DPI Exports (GS3 — Economy / GS2 — Governance):
UPI acceptance across the world (as of May 2025):
| Country | Year Live | Mode |
|---|---|---|
| Bhutan | 2021 | First country; BHIM app |
| UAE | 2021 | 60,000+ merchant QR codes |
| Singapore | 2023 | Bilateral PayNow-UPI link (February 2023) |
| France | 2024 | First European nation; tourist locations |
| Nepal | 2024 | Integrated with Fonepay national system |
| Mauritius | 2024 | UPI + RuPay |
| Sri Lanka | 2024 | Airports, tourist centres |
| Qatar | 2025 | Airports, malls, hospitality |
| Cyprus | 2025 | Second European nation (Eurobank Cyprus) |
Countries building their OWN UPI-stack domestic payment system (via NIPL):
| Country | Year | Details |
|---|---|---|
| Nepal | 2022 | First country to deploy UPI as a domestic P2P/P2M system (NIPL + Gateway Payment Service + Manam Infotech + Fonepay) |
| Trinidad and Tobago | 2024 | First Caribbean nation; NIPL + Ministry of Digital Transformation |
| Peru | 2024 | NIPL + Central Reserve Bank of Peru (BCRP) |
| Namibia | 2024 | NIPL + Bank of Namibia |
UPI transaction data:
- FY2024-25: 185.8 billion transactions worth ₹261 lakh crore (RBI Annual Report, May 2025)
- Growth: 41.7% YoY (from 131.1 billion in FY2023-24)
- Share of India's digital payment volume: 83.4% in FY25 (up from 79.4% in FY24)
- Global position: IMF identified UPI as handling approximately 49% of global real-time payment transaction volume
India Stack beyond UPI:
| Layer | DPI Component |
|---|---|
| Identity | Aadhaar (138.34 crore IDs issued) |
| Payments | UPI (NPCI), RuPay cards |
| Data/consent | Account Aggregator / DEPA |
| Documents | DigiLocker |
| Health | ABDM (Ayushman Bharat Digital Mission — health IDs) |
| Commerce | ONDC (Open Network for Digital Commerce) |
| Logistics | ULIP (Unified Logistics Interface Platform) |
| Education | DIKSHA |
International recognition:
- G20 2023 (India's Presidency): New Delhi Leaders' Declaration formally recognized DPI as a development accelerator; G20 Digital Ministers reached consensus: DPI as "accelerator of the Sustainable Development Goals (SDGs)"
- IMF (June 2025): Report identified India as a real-world case for treating digital identity, payments, and data-sharing like public infrastructure; cited UPI as the world's largest fast-payment system by volume
- World Bank: G20 Global Partnership for Financial Inclusion document lauded India's DPI as a decade-long achievement
UPSC synthesis: UPI Global + India Stack = GS3 economy + GS2 governance. Key exam facts: NPCI International (NIPL) established April 3 2020; 9+ countries accept UPI; Nepal, Trinidad & Tobago, Peru, Namibia = building their own UPI-stack domestic payment systems (via NIPL); Singapore = PayNow-UPI bilateral link February 2023; France = first European country 2024; UPI FY2024-25 = 185.8 billion transactions, ₹261 lakh crore, 41.7% growth; IMF = UPI is ~49% of global real-time payments; India Stack = Aadhaar + UPI + Account Aggregator (core 3 layers); G20 2023 = DPI recognized as SDG accelerator (India's presidency). Prelims trap: NPCI International ≠ NPCI (domestic); PayNow is Singapore's system (NOT India's); UPI share of India digital payments = 83.4% (FY25).
[Additional] 4b. Digital Rupee (e-₹) CBDC — Progress and Distinction from UPI
The chapter notes the e-₹ pilot launched December 2022 but provides no progress data. By March 2025, the e-₹ retail pilot has reached 60 lakh (6 million) users, ₹1,016.5 crore in circulation, 17 participating banks, and new features including offline payments and programmability. The key UPSC concept: CBDC is fundamentally different from UPI — UPI is a payment rail (moves bank money), while e-₹ IS money (RBI's direct liability), offering programmability that UPI cannot.
Key Terms — CBDC:
| Term | Meaning |
|---|---|
| CBDC (Central Bank Digital Currency) | Digital form of a nation's sovereign currency, issued and backed directly by the central bank; unlike bank deposits (liability of commercial banks), CBDC is a direct liability of the RBI — equivalent to a digital banknote |
| e-₹ (Digital Rupee) | India's CBDC; two variants: e₹-W (wholesale — for interbank settlement of government securities, launched November 1, 2022) and e₹-R (retail — for public use, launched December 1, 2022) |
| Programmable money | A feature unique to CBDC: digital tokens can be coded with conditions — spending only at specific merchants, for specific purposes (fuel, food, healthcare), within a time window, or in a geographic area; eliminates leakage in welfare delivery |
| Token-based settlement | CBDC uses token-based transfer (like passing a physical coin) — instant, final, no interbank reconciliation needed; unlike UPI which involves messaging between banks and NPCI |
| Offline capability | e-₹ is being piloted in offline mode (no internet needed) using NFC technology — unlike UPI which requires internet; enables financial inclusion in low-connectivity areas |
[Additional] Digital Rupee CBDC — Progress Data and Policy Significance (GS3 — Economy / Monetary Policy):
Timeline:
- Wholesale pilot (e₹-W): November 1, 2022 — 9 banks; settling secondary market government securities
- Retail pilot (e₹-R): December 1, 2022 — launched in Mumbai, Delhi, Bengaluru, Bhubaneswar; 4 banks initially
Progress (RBI Annual Report 2024-25, released May 2025):
| Metric | FY2022-23 | FY2023-24 | FY2024-25 (March 2025) |
|---|---|---|---|
| e₹ in circulation | ₹16.4 crore | ₹234 crore | ₹1,016.5 crore |
| Retail users | — | — | 60 lakh (6 million) |
| Participating banks | 4 → 13 | — | 17 banks |
| Non-bank distributors | No | No | Yes (MobiKwik, CRED, Yes Bank from January 2025) |
New features added in FY2024-25:
- Offline payments (NFC-based) — piloted; no internet required
- Programmable money — e-₹ tokens coded for specific purposes: fuel purchase, grocery, education, healthcare, travel; prevents misuse of welfare transfers
- Welfare delivery pilots — ~10 government welfare programs routing payments via e-₹ (e.g., Odisha's Subhadra Yojana components)
CBDC vs UPI — why both are needed:
| Dimension | UPI | e-₹ CBDC |
|---|---|---|
| Nature | Payment rail (moves bank deposits) | Digital currency (IS money itself) |
| Issuer | NPCI operates rails; RBI regulates | RBI is direct issuer |
| Liability | Commercial bank (deposit) | RBI (like physical cash) |
| Settlement | Interbank messaging via NPCI | Token transfer; instant; final |
| Bank account needed | Yes (both ends) | No (wallet-based) |
| Programmability | Not programmable | Programmable (purpose/time/location) |
| Offline | Not natively | Offline capable (NFC pilot) |
| Privacy | Fully traceable (linked to bank) | Cash-like (higher privacy) |
Current status: As of May 2026, e-₹ remains in the pilot phase — no announced date for full national rollout. RBI's stated approach is gradual expansion of use cases and user base. Total cumulative CBDC transactions are modest compared to UPI's daily volumes (UPI does ~16 billion transactions/month; e-₹ has 60 lakh users total).
RBI's rationale for CBDC alongside UPI:
- Cash replacement: Digital equivalent for those without bank accounts
- Programmable welfare: Eliminates subsidy leakage via purpose-bound spending conditions
- Cross-border settlement: Future potential to bypass SWIFT for international transactions
- Monetary sovereignty: Central bank money reduces systemic risk from commercial bank intermediaries
- Financial inclusion: Offline capability for low-connectivity areas
UPSC synthesis: CBDC e-₹ = GS3 economy + monetary policy. Key exam facts: e₹-W (wholesale) launched November 1 2022; e₹-R (retail) launched December 1 2022; 17 banks by March 2025; 60 lakh users; ₹1,016.5 crore in circulation (FY25); non-bank distributors from January 2025 (MobiKwik, CRED, Yes Bank); programmability = key feature (purpose-bound spending); offline via NFC = in pilot; CBDC is RBI's direct liability (unlike UPI which moves commercial bank deposits); CBDC still in pilot as of May 2026 (no full launch). Prelims trap: CBDC ≠ UPI; e₹-W launched BEFORE e₹-R (November 1 vs December 1 2022); RBI is issuer of e-₹ (NOT NPCI); ₹1 coin is Ministry of Finance (NOT RBI) — this old fact still tested.
Exam Strategy
Prelims traps:
- ₹1 coin is issued by the Ministry of Finance — NOT the RBI (all paper notes are RBI-issued)
- "Salary" etymology: Latin salarium = salt payment to Roman soldiers
- Sher Shah Suri's coin = Rupiya (silver); 1 Rupiya = 40 Dams (copper)
- RBI established = April 1, 1935; nationalised = January 1, 1949
- Muhammad bin Tughlaq's token currency failed because public refused to accept it and forged tokens flooded the market
- UPI is managed by NPCI (National Payments Corporation of India) under RBI — not directly by the government
- CBDC pilot (e-₹) launched = December 2022
Mains angles:
- Demonetisation: stated objectives vs outcomes — analytical framework for GS3
- UPI as digital public infrastructure — India's global export of fintech models
- Jan Dhan-Aadhaar-Mobile (JAM) trinity: financial inclusion mechanism
- Historical monetary experiments (Tughlaq's token currency) as lessons in policy design
- Central bank digital currency (CBDC): implications for monetary policy and financial system
Practice Questions
Prelims:
Which of the following is correct about the ₹1 coin in India?
(a) It is issued by the Reserve Bank of India
(b) It is issued by the Ministry of Finance, Government of India
(c) It is issued jointly by RBI and Ministry of Finance
(d) It is issued by the State Bank of IndiaWith reference to Unified Payments Interface (UPI), consider the following statements:
- UPI is operated by the National Payments Corporation of India (NPCI).
- UPI enables real-time bank-to-bank transfers using a mobile application.
Which of the above statements is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
- UPI is operated by the National Payments Corporation of India (NPCI).
Mains:
- "India's demonetisation of 2016 was a bold but disruptive policy intervention." Critically evaluate its stated objectives, immediate consequences, and long-term impact on India's economy and financial system. (CSE Mains 2017, GS Paper 3, 15 marks)
- Assess the role of the Jan Dhan-Aadhaar-Mobile (JAM) trinity in deepening financial inclusion in India. What challenges remain in reaching the last mile? (CSE Mains 2021, GS Paper 3, 15 marks)
