UPSC Prelims 2026 Q90: UPI vs Digital Rupee (CBDC) — Explained
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct?
- UPI is a real-time payment system but Digital Rupee is akin to sovereign paper currency.
- In case of UPI, settlement for end users happens instantly as the money gets immediately debited or credited but in case of Digital Rupee, there is no settlement as the wallet balance gets transferred to another wallet.
- UPI transactions are recorded by banks and reflected in bank statements but in case of Digital Rupee, no data is captured in bank statements as transactions are from one wallet to another.
- In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks.
Answer: (d) In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks.
Statement-wise explanation
- a: incorrect — This statement is correct, so it is not the answer. RBI's Digital Rupee FAQ says that e₹ is a digital form of ₹ whereas UPI is a means of payment. UPI is NPCI's real-time system for moving money between bank accounts. The e₹ is a digital token of the banknote itself, issued in the same denominations as paper currency and coins, and it also serves as a store of value.
- b: incorrect — This statement is correct, so it is not the answer. In a UPI payment, the payer's account is debited and the payee's account is credited at once, but behind this banks owe each other money that is settled later. An e₹ payment moves the token itself from one wallet to another, like handing over cash. RBI's FAQ says e₹ payments between two wallets 'are settled instantaneously without passing through user's bank accounts', so no separate settlement step is needed.
- c: incorrect — This statement is correct, so it is not the answer. A UPI payment debits or credits a bank account, so the bank records it and it appears in the bank statement. An e₹ payment between two wallets does not pass through the bank account, so it does not appear in the bank statement. Only loading the wallet from the bank account, or redeeming e₹ back into it, appears in the statement.
- d: correct — This is the wrong statement, so it is the answer. UPI moves bank deposits, and a deposit is the liability of the commercial bank that holds it. RBI's FAQ says e₹, 'being a digital form of the ₹ bank note, is legal tender and is the liability of Reserve Bank of India'. Banks only distribute e₹ wallets, so the liability does not lie with users and their banks in both cases.
How to eliminate
Start from one basic idea: whoever issues money is liable for it. A banknote says 'I promise to pay the bearer', which is RBI's promise. If the e₹ is a digital banknote, as the first statement itself says, it must be RBI's liability and not a commercial bank's. That alone makes the last statement suspect. It also contradicts the first statement: you cannot call the e₹ 'akin to sovereign paper currency' and then say its liability lies with commercial banks. Also notice the words 'In both the cases'. In a 'which is not correct' question, a statement that claims two different systems are the same is often the wrong one, because the other three statements each describe a difference. The middle two statements describe the cash-like, wallet-to-wallet nature of e₹, which follows from the first. Fact to remember: e₹ is a liability on RBI's balance sheet, exactly like currency in circulation.
Know more
Money vs the rail it travels on. UPI is a payment system. It moves money that already exists as a bank deposit from one account to another. The Digital Rupee (e₹) is money itself: a Central Bank Digital Currency issued by RBI as a digital form of the banknote. It is legal tender under the RBI Act, 1934.
| Feature | UPI | Digital Rupee (e₹) |
|---|---|---|
| What it is | Payment system run by NPCI (launched 2016) | Digital currency issued by RBI |
| What moves | Bank deposits | Digital tokens (like notes and coins) |
| Whose liability | The commercial bank holding the deposit | RBI |
| Where it is held | Bank account | e₹ wallet on a phone |
| In bank statement | Yes, every transaction | No, only loading or redeeming the wallet |
| Interest | Savings rate on the deposit | None (cash-like) |
Two types of CBDC. The wholesale pilot (e₹-W) began on 1 November 2022. It was used to settle secondary-market trades in government securities, with nine banks taking part. The retail pilot (e₹-R) began on 1 December 2022, first in a closed user group of four banks in four cities.
Newer features. The e₹ app can now scan any UPI QR code. In that case the payment settles on UPI timelines. Payments made at a CBDC QR settle instantly, wallet to wallet. Programmability lets a sponsor, such as the government, restrict funds to a stated purpose. This is the basis of the 2026 CBDC-based food-subsidy (PDS/PMGKAY) pilots. An offline mode for areas with poor connectivity is being explored.
Why liability matters. A deposit carries the risk that the bank fails. Deposit insurance covers only up to a limit. An e₹ token, like a banknote, is a claim on RBI itself, so it carries no bank credit risk.
In the news
Between January and February 2026 the e₹ was in the news. RBI proposed linking the CBDCs of BRICS countries, and CBDC-based Public Distribution System (PDS) pilots were launched in Gandhinagar and announced for Puducherry. This drew attention to how the e₹ differs from UPI, which is already widely used.
NCERT Concepts to Revise
- Central Bank Digital Currency: Defines the e₹ as RBI-issued legal tender in digital form, the starting point for judging every statement about it.
- Unified Payments Interface: Shows UPI is a real-time interoperable payment system, which matters for comparing settlement and record-keeping.
- Central bank: The question turns on which institution stands behind each form of money: a central bank or a commercial bank.
- Currency issue monopoly: RBI's sole right to issue currency explains why a digital banknote is treated like paper currency.