E-rupee rollout: Experts say security, transaction anonymity remain grey areas

As the Reserve Bank of India prepares for the large-scale rollout of the central bank digital currency (CBDC), or e-rupee, experts voiced concerns ranging from the security of such transactions and the ability to ensure user anonymity.

The e-rupee is the digital equivalent of the physical rupee. The RBI started the pilot project for the retail CBDC in closed groups in four cities on December 1.

According to Ram Rastogi, a financial policy and currency expert in Mumbai, it’s not clear how the RBI will ensure the anonymity of e-rupee transactions.

“There is one thing that people have to understand: whenever money transfers happen online, details like their internet protocol (IP) address details are saved with intermediaries. In the case of the e-rupee, the intermediary is the RBI,” Rastogi said.

In his post monetary-policy presser on December 7, RBI governor Shaktikanta Das said e-rupee transactions will not leave any digital footprint. The governor said all concerns related to the e-rupee will be addressed as the pilot progresses and the large-scale rollout is initiated.

RBI deputy governor T Rabi Sankar said it is possible to get a legal provision to ensure anonymity. Rabi Sankar, in the post-monetary policy press conference, further said that either a technological solution or a legal provision can protect the anonymity of transactions and the eventual path taken, however, will depend on how things evolve.

However, Rastogi said there are doubts about the claim on legal provision to ensure anonymity. He said that looking at the technological aspects of not recording digital footprints, we can only wait and see what steps the RBI takes.

Also read: How is e-rupee different from UPI?

Storage security

Rastogi said security concerns about the e-rupee digital wallets largely remain unclear.

“For unified payments interface (UPI), users have their mobile pin or UPI pin to secure their transactions. For digital wallets, RBI can bring something different,” Rastogi said.

Alok Kumar, chief technology officer at Karza Technologies, said: “It’s extremely important to critically evaluate aspects like security. We need to consider that the design choices across CBDC models, forms, and technologies, are in the nascent stage.”

There has been a debate on implementation of the e-rupee plan, especially in relation to security of storage of in a digital wallet. Das said the RBI will address all concerns, learning from the experience of the pilot project.

“Retail CBDC pilot has just started, so as we go there, we have several learnings and we will try to fine-tune them,” Das said.

“Collaborating with leading industry players, given their proven expertise, will definitely help in strengthening security as various types of security attacks will pose the same level of risks that these players are already exposed to,” Kumar said.

Digital illiteracy

A report by Nielsen, an information, data and market measurement firm, said rural India had 352 million internet users in 2022, about 20 percent higher than urban India.

“However, possibly because of low digital literacy, 60 percent of those 352 million internet users in rural areas were still not actively using the internet,” Nielsen said in the report.

Many people in rural areas with internet access lack the basic skills to navigate and use digital banking services. Experts said that due to this, people in rural areas can only access basic banking services and digital services largely remain far from their reach.

Junofy Anto Rozarina, a behavioural economist, highlighted the issues that people face while using digital payment methods in India.

“People are always concerned about digital transactions. There is a lack of trust and uncertainty on how the transactions will happen and one can expect the same psychology for any new and unfamiliar payment method,” Rozarina said.

Offline transactions

The RBI has proposed offline functionality for the digital rupee so that users can transact without the internet. This feature is being tested.

“Offline e-rupee transactions can be shared with the beneficiary through an SMS or QR code, which can be done on feature phones in rural and remote areas,” said Kunal Chowdhry, chief executive officer of Apollo Singapore Investments.

However, experts said there is confusion about the offline mode.

“The fact that e-rupee should also work in offline mode makes things further complicated. These will be a few critical areas where the RBI will have to work on innovative security solutions, apart from leveraging the already existing state-of-the-art security implementations,” Kumar said.