RBI launched Digital Rupee (e₹) pilots in two phases - wholesale CBDC (e₹-W) for secondary government securities market in November 2022, and retail CBDC (e₹-R) for person-to-person and merchant transactions from December 2022. Currently operates through select banks using digital wallets stored on mobile phones. Features offline functionality, programmable payments, and aims to reduce cash dependency while maintaining monetary sovereignty against private cryptocurrencies.

Digital Rupee represents India's strategic response to declining cash usage and rising cryptocurrency adoption. The two-tier architecture mirrors physical currency - RBI issues digital tokens to banks, who distribute to customers through wallets. Unlike cryptocurrencies, e₹ is legal tender backed by sovereign guarantee. The wholesale version (e₹-W) enables efficient interbank settlements, reducing transaction costs and settlement risks in government securities trading. Retail version (e₹-R) targets everyday transactions with offline capability for areas with poor connectivity. Key advantages include reduced printing costs, enhanced traceability for tax compliance, faster cross-border payments, and financial inclusion for unbanked populations. However, challenges include privacy concerns, cybersecurity risks, and potential disintermediation of banks if customers prefer holding CBDCs directly. The gradual rollout allows RBI to test technical infrastructure, assess monetary policy transmission effects, and calibrate features before nationwide launch. Success depends on merchant adoption, user experience, and maintaining public trust while competing with existing digital payment systems like UPI.