Context:

Recently, the European Central Bank (ECB) has introduced the digital euro as a central bank digital currency (CBDC) aimed at revolutionizing payment systems.

More on News:

• The ECB has presented this central bank's digital currency, the digital euro, as a new, better alternative for citizens: free, anonymous, and reliable.
• This currency is meant to be the government’s alternative to existing cashless options such as credit cards, apps, cryptocurrencies, and bank transfers.

About Digital Euro

• A digital euro is a digital form of cash, issued by the central bank and available to everyone in the euro area.
• It would act as an electronic equivalent to cash and it would complement banknotes and coins.
• People can use the digital euro to pay directly from a digital wallet, a smartphone or a computer, without involving a bank or payment gateway. 
• It will also be used for micropayments viz. a micropayment is an online financial transaction to access or purchase products/services, often involving minimal amounts of money. It would be convertible one-to-one with banknotes.

Need for Digital Euro

• Currently, there is no European digital payment option that covers the entire euro area, with 13 out of 20 countries reliant on international card schemes for card payments.
• A digital euro would be a European electronic means of payment accessible and accepted in all euro area countries.

India’s Digital Currency Scenario

• Digital Rupee, also called E-Rupee, denominated as e₹ or eINR, is a tokenised digital version of the Indian Rupee issued and regulated by the RBI (under the RBI Act of 1934). 
• It is built using blockchain distributed-ledger technology.
• The Digital Rupee (Indian e-currency) is an example of a central bank digital currency (CBDC). 
• CBDC refers to the digital form of a country's official currency, issued and controlled by its central bank. It functions similarly to physical notes and coins; the only difference is that it exists in digital form.

The RBI regulates two types of digital currencies:

• Wholesale CBDC (e₹-W): This is aimed at improving the efficiency of interbank settlements and payments between banks and financial institutions.
• Retail CBDC (e₹-R): This is aimed at the general public for retail transactions, similar to how people use physical currency today.