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Q3 (IAS/2024) Economy ā€ŗ Economy Current Affairs ā€ŗ 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: ā€”  Ā·  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 inflationā€”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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Donā€™t just practise ā€“ 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 (Rā€¦
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 5/10 Ā· 5/10
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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
ā€œā€¢ 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.ā€¢ RBI recently launched e-Rupee on pilot basis for Wholesale and retail markets.ā€¢ RBI Act 1934 has been amended to include e-rupee in 'bank note' and now it's a legal tender.ā€
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
ā€œIn 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.ā€
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 centralā€‘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
ā€œRBI 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.ā€
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.
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Statement analysis

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Statement analysis

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