GS Paper III 2026 · Q1
10 marks · 150 wordsWhat do you mean by Digital Rupee ? In this context, explain the working and progress of India’s Central Bank Digital Currency (CBDC).
🧭 How to think about this question · directive: “what / explain”
Decode the demand
- Two directives: 'what do you mean by' asks for a definition of the Digital Rupee; 'explain the working and progress' asks how India's CBDC is issued and used, and how far the pilots have gone. Three things to answer: meaning, working, progress.
- The issue in one line: e₹ is sovereign money in digital form, tested through RBI pilots since late 2022 rather than launched at once.
- The trap: treating e₹ as 'another UPI'. The examiner wants you to show the difference: UPI moves bank deposits, e₹ is central-bank money itself.
Think in a structure
- Open with the legal definition (Section 26, RBI Act) and the contrast with a deposit; one line that turns to working and progress.
- One heading per demand part: meaning (what it is and is not), working (variants, two-tier model, token design, payments), progress (reach, features, limits).
- Each point carries a keyword, a reason and one RBI-anchored fact; dates and documents go in sub-points.
- Visuals: a flowchart of the two-tier issuance for 'working'; a timeline for 'progress'. Both drawable in 30 seconds.
- End positively: three concrete steps for a full launch, then anchor on Viksit Bharat @2047 as the policy vision.
Facts checked at source (6)· open
- The retail e₹ has been live in pilot mode since 1 December 2022.RBI — Digital Rupee (e₹) FAQs ↗“The e₹ issuance, distribution, and usage within the retail segment (for members of the public) is live in pilot mode with effect from December 1, 2022.”
- RBI creates e₹ and issues it electronically to banks and non-banks, mirroring the issue of paper currency.RBI — Digital Rupee (e₹) FAQs ↗“Creation and issuance of retail e₹ is identical to the arrangement for issuance of paper currency i.e., RBI creates e₹ and issues them to banks and non-banks electronically.”
- e₹ wallets in the retail pilot are provided by both banks and non-banks.RBI — Digital Rupee (e₹) FAQs (PDF, January 2025) ↗“e₹ wallets are being currently provided by banks and non-banks, which are part of the retail CBDC pilot.”
- The Union Budget 2022-23 proposed introducing a Digital Rupee, using blockchain and other technologies, to be issued by the RBI starting 2022-23.Union Budget 2022-23 — Budget Speech of the Finance Minister ↗“proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23”
- The first wholesale Digital Rupee (e₹-W) pilot, from 1 November 2022, had settlement of secondary-market transactions in government securities as its use case.RBI Press Release — Operationalisation of Central Bank Digital Currency – Wholesale (e₹-W) Pilot ↗“The use case for this pilot is settlement of secondary market transactions in government securities.”
- RBI's Concept Note on CBDC (October 2022) viewed a token-based CBDC as the preferred mode for retail CBDC because it is closer to physical cash, with account-based considered for wholesale.RBI — Concept Note on Central Bank Digital Currency ↗“token-based CBDC is viewed as a preferred mode for CBDC-R as it would be closer to physical cash”
Question: UPSC's CS (Main) 2026, GS Paper III — paper ↗. Guidance: Minimalist IAS, checked 8 Nov 2026 (how we verify). ·
Model answer· 397words · Minimalist IAS
The Digital Rupee (e₹) is the rupee in electronic form, legal tender issued by the RBI under Section 26 of the RBI Act, 1934; unlike a bank deposit or UPI balance, it is a direct liability of the central bank. India is testing it through live pilots, not a big-bang launch.
What the Digital Rupee means
- Sovereign digital money: same as a note, exchangeable one-to-one with the rupee, a claim on the RBI rather than on any bank.
- Not UPI, not crypto: UPI moves bank deposits and crypto has no issuer; e₹ is money itself, so its transfer is final settlement.
- Budget 2022-23 proposed the Digital Rupee, using blockchain and other technologies, to be issued by the RBI from 2022-23.
The full answer goes on to cover
- How India's CBDC works
- Progress of the pilots
- Way forward
With 1 flowchart, 1 timeline you can reproduce in the exam.
Prepared by Minimalist IAS to the answer standard of Shivam Singh (mentor, 7 years) · facts checked against official sources (how we verify) · updated 8 Nov 2026. UPSC publishes no model answers: compare your structure and coverage with this, then write your own.







