Consider the following statements in respect of the digital rupee:

It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy.
It appears as a liability on the RBI’s balance sheet.
It is insured against inflation by its very design.
It is freely convertible against commercial bank money and cash.

Which of the statements given above are correct?
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 4 only
(d) 1, 2 and 4

Correct Answer: (d) 1, 2 and 4

Explanation:

Statement 1: It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy.
- This statement is correct. The digital rupee is a sovereign currency issued by the RBI in accordance with its monetary policy .
Statement 2: It appears as a liability on the RBI’s balance sheet.
- This statement is correct. The digital rupee appears as a liability on the RBI’s balance sheet.
Statement 3: It is insured against inflation by its very design.
- This statement is incorrect. The digital rupee is not insured against inflation by its design. It functions similarly to physical cash, which is not inherently protected against inflation.
Statement 4: It is freely convertible against commercial bank money and cash.
- This statement is correct. The digital rupee is freely convertible against commercial bank money and cash.

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Definition and Issuance:
- The digital rupee is a Central Bank Digital Currency (CBDC) issued by the Reserve Bank of India (RBI). It is a digital form of the Indian rupee and is designed to complement existing forms of money .
Legal Tender:
- The digital rupee is considered legal tender and can be used for all types of transactions, similar to physical currency .
Distribution and Usage:
- The digital rupee is distributed through intermediaries, such as banks, and can be used for Person to Person (P2P) and Person to Merchant (P2M) transactions. Payments can be made using QR codes displayed at merchant locations .
Pilot Program:
- The RBI has launched a pilot program to test the digital rupee in select locations with participating banks and users. The pilot aims to assess the robustness of the digital rupee’s creation, distribution, and retail usage .
Conversion and Storage:
- The digital rupee can be converted into physical cash and vice versa. It is stored in a digital wallet provided by participating banks and can be accessed via mobile devices .
Benefits:
- The digital rupee offers benefits such as reduced transaction costs, faster settlements, and enhanced financial inclusion. It also aims to provide a secure and efficient means of payment .
Comparison with Cryptocurrency:
- Unlike cryptocurrencies, the digital rupee is regulated by the RBI and has a fixed value equivalent to the physical rupee. It is not subject to the same volatility as cryptocurrencies .
Privacy and Security:
- The digital rupee transactions are designed to be secure and transparent. However, there are concerns about privacy as transactions can be monitored by the central bank .