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Q3 (IAS/2024) Economy › Economy Current Affairs › Digital payments ecosystem Official Key

Consider the following statements in respect of the digital rupee : 1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy. 2. It appears as a liability on the RBI's balance sheet. 3. It is insured against inflation by its very design. 4. It is freely convertible against commercial bank money and cash. Which of the statements given above are correct ?

Result
Your answer: —  ·  Correct: D
Explanation

The correct answer is option D (statements 1, 2, and 4 are correct).

E-Rupee is a legal tender issued by a central bank in a digital form[2], confirming it is a sovereign currency issued by the RBI in alignment with its monetary policy (Statement 1 is correct). It is the same as a fiat currency and is no different from cash and is exchangeable one-to-one with the fiat currency (bank notes/cash) at par[2], which establishes that it appears as a liability on RBI's balance sheet like other currency notes (Statement 2 is correct). The digital rupee is freely convertible against commercial [3]bank money and cash, making Statement 4 correct as well.

However, Statement 3 is incorrect. E-Rupee will not earn any interest like cash[4], which means it has no built-in mechanism to protect against inflation. Like physical currency, the digital rupee's purchasing power can erode due to inflation—there is no inherent design feature that insures it against inflation. Therefore, statements 1, 2, and 4 are correct, making option D the right answer.

Sources
  1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
  2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
  3. [4] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > How will e-Rupee work? > p. 79
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. Consider the following statements in respect of the digital rupee : 1. It is a sovereign currency issued by the Reserve Bank of India (R…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 5/10 · 5/10

This is a classic 'Old Wine in New Bottle' question. The 'New Bottle' is the Digital Rupee, but the 'Old Wine' is the static definition of Fiat Money and Central Bank Liabilities. Strategy: Don't just read news headlines about CBDC; apply core banking concepts (Liability vs Asset, Inflation link) to every new financial term you encounter.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Is India's digital rupee a sovereign currency issued by the Reserve Bank of India (RBI) and aligned with RBI's monetary policy?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
Presence: 5/5
“• E-Rupee is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is no different from cash and is exchangeable one-to-one with the fiat currency (bank notes/cash) at par. Only its form is different i.e., digital.• RBI recently launched e-Rupee on pilot basis for Wholesale and retail markets.• RBI Act 1934 has been amended to include e-rupee in 'bank note' and now it's a legal tender.”
Why this source?
  • Explicitly defines e-Rupee as a legal tender issued by the central bank in digital form (central bank digital currency).
  • Says e-Rupee is the same as fiat currency and exchangeable one-to-one with banknotes/cash.
  • Notes RBI launched e-Rupee on a pilot basis and that RBI Act was amended to include e-rupee as legal tender.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 53
Presence: 4/5
“In an economy, money consists of mainly currency notes, coins and deposits of public in banks. In India coins and currency notes are issued for circulation by the Reserve Bank of India (RBI), which is the monetary authority (or Central Bank) in India. One-rupee note and all coins and subsidiary coins, the magnitude of which is relatively small, are minted/printed by the Government of India, while all the other currency notes are printed by the RBI. All the currency notes and coins are put into circulation only through the RBI, which is the sole authority for the issue of currency and coins in India.”
Why this source?
  • Identifies RBI as the monetary authority and sole issuer of currency notes (except one-rupee note).
  • Establishes that currency issuance is an RBI function, supporting the claim that a central‑bank digital rupee would be sovereign RBI-issued currency.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.1 Introduction > p. 38
Presence: 4/5
“RBI used to issue the paper slips without the deposition of physical gold (but by keeping some other assets). So, if the production of goods and services (i.e., the output) is increasing in the economy, then RBI can issue more Rupee currency notes (by accepting some other assets like government securities, foreign currency) to facilitate transaction in the economy. The logic is if RBI is issuing the currency notes, then it must be backed by some asset physical or financial (may not necessarily gold). Now we have a huge population and if all the people are going to transact with RBI asking for Rupee notes or deposition of gold then it will be very difficult for RBI to manage them.”
Why this source?
  • Explains RBI's role in issuing currency backed by assets and its discretion to issue currency in response to economic output.
  • Links currency issuance to RBI's monetary authority and balance-sheet operations, supporting alignment with RBI monetary policy.
Statement 2
Does India's digital rupee appear as a liability on the Reserve Bank of India's balance sheet?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
Presence: 5/5
“• E-Rupee is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is no different from cash and is exchangeable one-to-one with the fiat currency (bank notes/cash) at par. Only its form is different i.e., digital.• RBI recently launched e-Rupee on pilot basis for Wholesale and retail markets.• RBI Act 1934 has been amended to include e-rupee in 'bank note' and now it's a legal tender.”
Why this source?
  • Defines e‑Rupee as legal tender issued by the central bank and equivalent one‑to‑one with fiat cash.
  • Says RBI Act was amended to include e‑Rupee in the definition of 'bank note', tying its legal classification to existing currency rules.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.11 Money Circulation > p. 57
Presence: 4/5
“The RBI may sell some part of its gold assets to purchase foreign exchange reserves or government securities. This can be represented as. • Col1: Rs. 150 Note 300 in A/c; Assets: Vault Cash = Deposits with RBI 200 Rs. 300; Liability: Deposits of Public = Rs. 300 Rs. 300; Assets: Gold = Rs. 100 Foreign Exchange Reserve Govt. Securities = Rs. 200; Liability: Currency held by Public = Rs. 150 Vault Cash held by banks Deposits of bank = Rs. 200 Deposits of Govt. (Treasury Deposits) = Rs. 50 • Col1: ; Assets: ; Liability: ; Assets: Rs. 500; Liability: Rs.”
Why this source?
  • Example balance-sheet layout explicitly records 'Currency held by Public' on the liability side.
  • Establishes that currency in circulation is treated as a central bank liability, which by analogy applies if e‑Rupee is classed as a bank‑note.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
Presence: 4/5
“The One Rupee note is signed by the finance secretary (and printed by Govt.) as a testimony that it is the base unit of the currency system. Coins and One Rupee note are minted/printed by the government of India and hence constitute the liability of Government of India. As part of the circulation process, RBI buys the one rupee note and minted coins from the Government of India and hence the coins and one rupee note come and sit under the asset section of RBI's balance sheet. All banknotes (except one rupee note) issued by RBI are backed by assets such as gold, Government Securities and Foreign Currency Assets, as defined in Section 33 of RBI Act, 1934.”
Why this source?
  • Explains that banknotes issued by RBI (except one‑rupee) are backed by assets as per the RBI Act, implying a liability entry opposite those assets.
  • Distinguishes one‑rupee/coins (government issuance) and their movement on RBI accounts, clarifying how different currency items are recorded.
Statement 3
Is India's digital rupee inherently protected or insured against inflation by its design?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"Enhanced Monetary Policy Tools: The Digital Rupee provides the RBI with additional tools and channels to implement monetary policy, such as direct control over money supply, interest rates, and liquidity management through digital transactions. Real-Time Data Analysis: Digital transactions using the Digital Rupee generate real-time transaction data, enabling the RBI to monitor economic activity, inflation trends, and monetary aggregates more accurately and make timely policy decisions."
Why this source?
  • Explicitly states the Digital Rupee gives the RBI additional tools such as direct control over money supply, interest rates and liquidity — implying inflation management is a policy/tool function, not an automatic design feature.
  • Notes real-time transaction data enables the RBI to monitor inflation trends and make timely policy decisions — again indicating monitoring and policy action, not inherent inflation insurance.
Web source
Presence: 3/5
"Digital Rupee can be beneficial for the Indian economy in various aspects, such as financial inclusion, MSME financing, cross-border payments and securities settlement, among others. The policymakers should consider all the challenges and design policies that directly facilitate the adoption of Digital Rupee and need to facilitate an environment where the private sector participation is maximized by incentivizing them to invest in"
Why this source?
  • Says policymakers should design policies to facilitate adoption and private participation — indicating outcomes (like inflation protection) depend on policy choices rather than being built into the currency itself.
  • Emphasizes the need for policy design and challenges to be considered, reinforcing that control and safeguards come from policy implementation, not intrinsic currency design.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
Strength: 5/5
“• E-Rupee is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is no different from cash and is exchangeable one-to-one with the fiat currency (bank notes/cash) at par. Only its form is different i.e., digital.• RBI recently launched e-Rupee on pilot basis for Wholesale and retail markets.• RBI Act 1934 has been amended to include e-rupee in 'bank note' and now it's a legal tender.”
Why relevant

States e‑Rupee is the same as fiat currency, legal tender and exchangeable one‑to‑one with cash—i.e., only form differs.

How to extend

A student could infer that since it's fiat money, its inflation exposure likely depends on monetary policy and money supply rather than an automatic technical protection in the digital form.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
Strength: 4/5
“The One Rupee note is signed by the finance secretary (and printed by Govt.) as a testimony that it is the base unit of the currency system. Coins and One Rupee note are minted/printed by the government of India and hence constitute the liability of Government of India. As part of the circulation process, RBI buys the one rupee note and minted coins from the Government of India and hence the coins and one rupee note come and sit under the asset section of RBI's balance sheet. All banknotes (except one rupee note) issued by RBI are backed by assets such as gold, Government Securities and Foreign Currency Assets, as defined in Section 33 of RBI Act, 1934.”
Why relevant

Explains that banknotes (except one rupee) issued by RBI are backed by assets (gold, government securities, foreign currency assets) as per the RBI Act.

How to extend

One can check whether e‑Rupee liabilities are likewise asset‑backed in RBI accounts — if not, lack of explicit backing may mean no built‑in inflation insurance.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 9. Issuer of Currency > p. 70
Strength: 4/5
“• The RBI, along with the government of India, is responsible for the design, production and overall management of the nation's currency, with the goal of ensuring an adequate supply of clean and genuine notes. In consultation with the government, the RBI routinely addresses security issues and targets ways to enhance security features to reduce the risk of counterfeiting of currency notes.• The RBI carries out the currency management function through its department of currency management (Mumbai), 19 Issue Offices located across the country and a currency chest at its Kochi branch. To facilitate the distribution of notes and rupee coins across the country, the RBI has authorized selected branches of banks to establish currency chests (currency chests are storehouses where bank notes and rupee coins are stocked on behalf of RBI).”
Why relevant

Describes RBI’s role in design, production and overall management of the nation's currency and its tools to ensure currency integrity.

How to extend

Combine this with knowledge that central banks control monetary policy — a student could ask whether the RBI’s policy framework treats e‑Rupee differently for inflation control.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > After 1993: > p. 40
Strength: 3/5
“After 1993, RBI left the rupee to the market forces of demand and supply i.e., floating exchange rate. Floating exchange rate implies that its value will depend/float as per the market forces of demand and supply of the currency in the market and the Central bank of the country will not manipulate it. For example, if more and more foreign investors are trying to come to India for investment purpose, then they will try to sell their foreign currency and purchase rupees as they can invest in India in Indian Rupee only. As they will try to purchase more and more Indian Rupees the demand of Rupees will increase and it will appreciate.”
Why relevant

Describes floating exchange rate driven by market demand and supply (post‑1993) affecting rupee value.

How to extend

Using basic external facts about how market forces and capital flows affect currency value, a student could examine if e‑Rupee design insulates domestic price levels from such forces (unlikely if exchange/market dynamics remain).

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > The Committee (in its report in 2014) recommended for focusing on only one objective, i.e. INFLATION TARGETING. > p. 73
Strength: 3/5
“Why Inflation Targeting is needed in India - As per the report, it is required because: • Real interest rates have remained negative during most of the post-global crisis period. • External competitiveness is getting eroded due to continuous higher levels of inflation. \bullet Due to inflation, there has been a large import of Gold due to its increasing demand and it has \bullet resulted in widening of the Current Account Deficit. • Continuous weakening of exchange rate has occurred due to persisting high inflation.”
Why relevant

Notes the importance of inflation targeting as a policy objective to maintain price stability and competitiveness.

How to extend

A student could infer that inflation outcomes are managed by policy (targets, interest rates), so whether e‑Rupee is protected depends on policy choices rather than inherent technical design.

Statement 4
Is India's digital rupee freely convertible to and from commercial bank money and cash?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"3 freely convertible against commercial bank money and cash"
Why this source?
  • Explicitly states the Digital Rupee design includes free convertibility with commercial bank money and cash.
  • Appears in an EY report summarizing RBI's characterization of the Digital Rupee (directly answers the convertibility question).
Web source
Presence: 4/5
"3 It is freely convertible against commercial bank"
Why this source?
  • Repeats the same point that the e‑rupee is freely convertible against commercial bank money, corroborating passage [1].
  • Located in an EY source summary listing key attributes of the e‑rupee, supporting the convertibility claim.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
Strength: 5/5
“• E-Rupee is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is no different from cash and is exchangeable one-to-one with the fiat currency (bank notes/cash) at par. Only its form is different i.e., digital.• RBI recently launched e-Rupee on pilot basis for Wholesale and retail markets.• RBI Act 1934 has been amended to include e-rupee in 'bank note' and now it's a legal tender.”
Why relevant

States e‑Rupee is legal tender, 'the same as a fiat currency' and 'is exchangeable one‑to‑one with the fiat currency (bank notes/cash) at par'.

How to extend

A student could treat this as a rule that e‑Rupee should be convertible with cash and then check operational details (RBI rules, wallets, bank interfaces) to confirm whether this one‑to‑one exchange is implemented in practice.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > How will e-Rupee work? > p. 79
Strength: 4/5
“• E-Rupee will be a bearer instrument i.e., whoever is holding the e-Rupee will be assumed to be the owner at any given point of time• E-rupee will not earn any interest like cash”
Why relevant

Notes e‑Rupee will be a bearer instrument and will not earn interest like cash — highlighting equivalence in form and function to cash.

How to extend

A student could infer that bearer, non‑interest digital currency is intended to substitute cash and then examine whether commercial banks accept/convert bearer e‑Rupee to deposit balances.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: India’s Foreign Exchange and Foreign Trade > CONVERTIBILITY OF INDIAN RUPEE > p. 498
Strength: 4/5
“• Convertibility means that the currency of a country can be freely converted into a foreign exchange at market-determined exchange rate. • For example, convertibility of rupee means that those who have foreign exchange (e.g. US Dollars and Pound Sterling) can get them converted into rupee and vice versa at the market-determined rate of exchange. • Convertibility is of two types: on current account and on capital account.”
Why relevant

Gives a general definition of 'convertibility' as free conversion of a currency into other currencies at market rates; introduces the concept and types of convertibility.

How to extend

Use this definition as a template: ask whether 'convertibility' between e‑Rupee and bank money/cash is explicitly allowed or restricted by RBI/operational rules.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Current Account Convertibility: > p. 109
Strength: 3/5
“• RBI allows full conversion of Rupee into foreign currencies and foreign currencies into Rupee (at market price i.e., Nominal Exchange Rate) for any transactions under current account of BoP. This is called "rupee is fully convertible at current account".• So, suppose someone wants to import commodities worth $10 billion in India then RBI will convert that many Rupees into $10 billion without any restriction for import purpose. As a part of the economic reforms initiated in 1991 rupee was made fully convertible at current account in 1993.”
Why relevant

Explains 'current account convertibility' — an example of how convertibility is operationally defined by RBI in the foreign exchange context (full conversion allowed under current account).

How to extend

A student can analogize: if RBI defines convertibility in FX terms, check whether RBI or legislation similarly defines/effects convertibility between CBDC (e‑Rupee) and domestic monetary forms.

Pattern takeaway: UPSC loves 'Conceptual Application.' They didn't ask about the underlying technology (Blockchain/DLT); they asked about the accounting and monetary nature. Pattern: New Tech + Old Economic Laws. Always map current affairs back to the static syllabus (Balance Sheet, Inflation).
How you should have studied
  1. [THE VERDICT]: Sitter for conceptual learners, Trap for keyword hunters. Statements 1 & 2 are direct from standard texts (Vivek Singh/Singhania); Statement 3 is a logic test.
  2. [THE CONCEPTUAL TRIGGER]: Money & Banking > Forms of Money > Fiat Money vs. Legal Tender vs. Cryptocurrency. The trigger is the specific launch of the Retail & Wholesale e-Rupee pilots.
  3. [THE HORIZONTAL EXPANSION]: Memorize these CBDC specifics: 1) It is NOT interest-bearing (to prevent bank disintermediation). 2) It offers 'tiered anonymity' (small value private, large value tracked). 3) Difference between CBDC and UPI (UPI is a payment rail; CBDC is the money itself). 4) It uses a hybrid architecture (not purely blockchain).
  4. [THE STRATEGIC METACOGNITION]: When a new financial instrument arrives, ask 3 fundamental questions: Who issues it? (RBI vs Govt), Where does it sit on the balance sheet? (Liability vs Asset), and How does it interact with existing money? (Convertibility). Ignore the 'tech hype' and focus on the 'economic nature'.
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Central Bank Digital Currency (e-Rupee) as legal tender
💡 The insight

e-Rupee is a central bank–issued digital form of the rupee and is legal tender, exchangeable one-to-one with fiat currency.

High-yield for questions on digital payments and monetary instruments; it links technological change (CBDC) to constitutional/legal status of currency and monetary sovereignty. Mastery enables answering policy, legal and macroeconomic implications of introducing a CBDC.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
🔗 Anchor: "Is India's digital rupee a sovereign currency issued by the Reserve Bank of Indi..."
📌 Adjacent topic to master
S1
👉 RBI as sole issuer and monetary authority
💡 The insight

RBI holds monopoly over issuance of currency notes and functions as the country's monetary authority controlling money supply.

Essential for understanding monetary policy, currency management, and central bank functions in economic governance. This concept connects to topics on inflation control, liquidity management, and fiscal-monetary relations—common UPSC mains and prelims themes.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 53
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 9. Issuer of Currency > p. 70
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.1 Introduction > p. 38
🔗 Anchor: "Is India's digital rupee a sovereign currency issued by the Reserve Bank of Indi..."
📌 Adjacent topic to master
S1
👉 Legal status and backing of currency under RBI Act
💡 The insight

Currency issued by RBI is granted legal‑tender status and is backed/defined under provisions of the RBI Act; e-Rupee was incorporated into that legal framework.

Useful for questions on statutory basis of currency, legislative amendments, and implications for monetary instruments; helps frame answers on legality, backing and institutional authority of new monetary forms.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
🔗 Anchor: "Is India's digital rupee a sovereign currency issued by the Reserve Bank of Indi..."
📌 Adjacent topic to master
S2
👉 Central Bank Digital Currency (e‑Rupee) as legal tender
💡 The insight

E‑Rupee is legally defined as a bank‑note and is exchangeable one‑to‑one with fiat cash, so its institutional treatment follows central bank currency rules.

High yield: essential for questions on classification and legal status of CBDCs, the implications of RBI Act amendments, and policy answers on digital payments. Connects to payment systems, monetary law, and RBI powers; enables tackling questions about convertibility and parity with cash.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
🔗 Anchor: "Does India's digital rupee appear as a liability on the Reserve Bank of India's ..."
📌 Adjacent topic to master
S2
👉 Currency/banknotes as liabilities on the central bank balance sheet
💡 The insight

Currency held by the public appears on the liability side of the RBI balance sheet, so items classed as banknotes are recorded as liabilities.

High yield: fundamental for understanding central bank accounting, money supply measurement and the asset‑liability effects of currency issuance. Links to topics on reserve backing, liquidity management and monetary policy operations.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.11 Money Circulation > p. 57
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
🔗 Anchor: "Does India's digital rupee appear as a liability on the Reserve Bank of India's ..."
📌 Adjacent topic to master
S2
👉 Government vs RBI issuance: one‑rupee note and coins
💡 The insight

One‑rupee notes and coins are minted/issued by the Government and have distinct balance‑sheet treatment compared to RBI‑issued banknotes.

High yield: clarifies exceptions in currency issuance rules and fiscal‑monetary interface questions (seigniorage, signatures on notes, accounting treatment). Useful for comparing GOI and RBI roles in currency management.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 53
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Eunctions of RBI > p. 162
🔗 Anchor: "Does India's digital rupee appear as a liability on the Reserve Bank of India's ..."
📌 Adjacent topic to master
S3
👉 E‑Rupee as Digital Form of Fiat (Parity with Cash)
💡 The insight

The digital rupee is legally the same as fiat cash and convertible one‑to‑one with the existing currency unit.

Understanding that a central bank digital currency (CBDC) can be merely a change in form — not a change in monetary substance — is high‑yield for questions on monetary innovations and their macro effects. It connects to topics on legal tender, monetary base, and how design choices affect inflation exposure; this enables evaluation of claims that a CBDC itself insulates value.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > What is Central Bank Digital Currencies (e-Rupee)? > p. 78
🔗 Anchor: "Is India's digital rupee inherently protected or insured against inflation by it..."
🌑 The Hidden Trap

The 'Interest' Trap: The next logical question is, 'Does holding e-Rupee earn interest?' The answer is NO. If it did, people would withdraw money from savings accounts to hold e-Rupee, causing 'Bank Disintermediation' (collapse of bank deposits). This is the most critical design choice not yet asked.

⚡ Elimination Cheat Code

The 'Magic Bullet' Filter: Look at Statement 3 ('Insured against inflation by its very design'). No fiat currency in history is immune to inflation by 'design'; inflation is a function of money supply and goods supply. 'By its very design' is an extreme, magical claim. Eliminate 3 -> You are left with options A, C, or D. Since 1 and 2 are textbook definitions, D becomes the high-probability candidate.

🔗 Mains Connection

Mains GS-3 (Economy & Security): Link CBDC to 'De-dollarization' (bypassing SWIFT for cross-border payments) and 'Money Laundering' (traceability vs. the right to financial privacy).

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SIMILAR QUESTIONS

IAS · 2000 · Q29 Relevance score: 2.43

Consider the following statements : The Indian rupee is fully convertible I. in respect of Current Account of Balance of Payment. II. in respect of Capital Account of Balance of Payment. III. into gold. Which of these statements is/are correct ?

IAS · 2021 · Q31 Relevance score: 2.38

Consider the following statements : 1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government. 2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest. 3. The Governor of the RBI draws his power from the RBI Act. Which of the above statements are correct?

IAS · 2001 · Q54 Relevance score: 2.22

Consider the following statements regarding Reserve Bank of India : I. It is a banker to the Central Government. II. It formulates and administers monetary policy. III. It acts as an agent of the Government in respect of India’s membership of IMF. IV. It handles the borrowing programme of Government of India. Which of these statements are correct ?

IAS · 2023 · Q72 Relevance score: 1.65

With reference to Central Bank digital currencies, consider the following statements : 1. It is possible to make payments in a digital currency without using US dollar or SWIFT system. 2. A digital currency can be distributed with a condition programmed into it such as a time-frame for spending it. Which of the statements given above is/are correct?