Author: Shreya Rajeev Warrier, G.J. Advani Law College, Mumbai
TO THE POINT
India’s rollout of the Digital Rupee (e₹) marks a transformative leap in its monetary landscape, aligning with global trends toward sovereign digital currencies. Initiated by the Reserve Bank of India (RBI) through pilot phases in 2022–23, the Central Bank Digital Currency (CBDC) promises efficiency by reducing the costs of currency management and enhancing settlement systems. However, this innovation has outpaced legal safeguards. In the absence of a dedicated CBDC legislation, harmonization with the Digital Personal Data Protection Act, 2023, and lack of judicially monitored privacy and redress mechanisms raise red flags regarding financial surveillance, data misuse, exclusion of vulnerable populations, and erosion of monetary anonymity. This article advocates for the establishment of a robust legal framework to ensure that India’s Central Bank Digital Currency not only upholds individual rights and financial autonomy but also avoids the risk of drifting into a tool of executive overreach, rather than a pillar of inclusive and accountable financial reform.
USE OF LEGAL JARGON
CBDC (Central Bank Digital Currency): Sovereign digital currency issued by a central bank.
Retail vs. Wholesale CBDC: Used by the public vs. financial institutions, respectively.
Legal tender: Any instrument that legally satisfies debt obligations.
Disintermediation: Withdrawal of funds from commercial banks to CBDC wallets, weakening their financial role.
Informed consent (in digital context): Voluntary and transparent agreement for data use.
Adverse Event (AE) Reporting (for CBDC misuse): Conceptually borrowed from pharmaceutical trials, this could analogously apply to unauthorized access or cyber incidents.
Suo moto cognizance: Judicial action initiated without formal petition, often used in public interest digital rights cases.
Rule 122 DAB: Compensation rule from drug laws, relevant to digital redressal principles.
The Digital Rupee, as a Central Bank Digital Currency (CBDC), is issued by the Reserve Bank of India under its statutory authority under Section 22 of the RBI Act, 1934. As a sovereign legal tender in digital form, it operates within the frameworks of monetary sovereignty, dematerialization of cash, and state-backed fiat issuance. However, its implementation relies heavily on executive notification rather than legislative enactment, rendering its legality procedurally vulnerable.
Legal challenges arise in the absence of a standalone CBDC statute. Key constitutional protections such as Article 21 (Right to Privacy), Article 300A (Right to Property), and Article 14 (Equality) must be upheld through adequate legislative provisions. Further, concepts like financial surveillance, programmable currency, and informational autonomy require statutory clarity to ensure that innovation does not compromise citizen rights.
INTRODUCTION
Digital Rupee was launched in two phases by RBI:
e₹-W (Wholesale): launched in November 2022, used for interbank settlements,
e₹-R (Retail): Rolled out for consumer use in December 2022 in select Indian cities with the help of participating banks.
Notably, these pilots were implemented without a dedicated CBDC law, relying instead on amendments to the RBI Act, 1934 introduced through the Finance Act, 2022. The Reserve Bank does not disclose full technical architecture or data protocols of the Digital Rupee, which raises transparency concerns.
The Digital Rupee is legal tender, but lacks statutory recognition under the Coinage Act, 2011, and no amendment to the Information Technology Act, 2000 has been made to govern its encryption or data handling. Further, no appellate or redressal authority has been specified in case of data misuse or wallet fraud.
THE PROOF
The Digital Rupee (e₹), introduced by the RBI, has significantly improved transactional efficiency, especially in interbank settlements. It reduces operational costs tied to physical currency and supports a faster, secure payments aligned with India’s digital economy goals. As a sovereign digital currency, it promises greater transparency and real-time transfers, potentially strengthening the financial ecosystem.
In 2025, India still lacks a dedicated CBDC statute, leaving critical issues such as user rights, data protection, and dispute redress unaddressed. A key legal concern is the risk of state overreach stemming from the programmable and traceable nature of CBDCs. The RBI Act, 1934, and recent amendments under the Finance Act, 2022, enable issuance but do not guarantee safeguards for anonymity or prevent state surveillance. Without clear limits, the programmable and traceable nature of the e₹ risks infringing on the right to privacy under Article 21, as upheld in Justice K.S. Puttaswamy v. Union of India (2017).
While the e₹ is expected to enhance financial inclusion, lack of digital access in rural areas could deepen exclusion. Additionally, no statutory grievance mechanism currently protects CBDC users, unlike traditional banking services under the Consumer Protection Act, 2019. Without robust safeguards, the Digital Rupee may shift from being a financial innovation to a tool of unchecked state control and legal uncertainty.
JUDICIAL DEVELOPMENTS
In Internet and Mobile Association of India v. RBI [(2020) 10 SCC 274], the Court struck down the RBI’s ban on cryptocurrency trading, reinforcing the constitutional principle that state-imposed restrictions on financial innovation must be proportionate, non-arbitrary, and legally justified. The same rationale applies to the deployment of CBDCs in the absence of a clear statutory framework or defined user protections.
Shreya Singhal v. Union of India [(2015) 5 SCC 1] highlighted the constitutional infirmity of vague and undefined regulatory provisions, especially those affecting digital rights. If CBDC implementation relies on undefined executive guidelines without legislative clarity on user rights, surveillance limits, or grievance mechanisms, similar constitutional challenges may arise.
Lastly, in Swasthya Adhikar Manch v. Union of India [(2013) 9 SCC 469], while addressing ethical lapses in clinical trials, the Court emphasized the need for informed consent, public accountability, and regulatory transparency. These principles are equally relevant to CBDC design and deployment, where transparency and voluntary use must be central to protect individual financial autonomy.
The deployment of the Digital Rupee raises significant constitutional and statutory concerns, particularly in relation to Article 21 (right to privacy), Article 300A (right to property), and Article 14 (equality in access to financial systems). While the RBI derives its authority under the RBI Act, 1934, the legal framework intersects with the Information Technology Act, 2000, Coinage Act, 2011, and the Payment and Settlement Systems Act, 2007.
In the event of constitutional violations, affected parties may seek remedy before High Courts under Article 226 or the Supreme Court under Article 32. Oversight remains fragmented, with key roles played by the RBI, Ministry of Electronics and IT (MeitY), and the Parliamentary Standing Committee on Finance.
LEGISLATIVE REFORMS
As of now, no CBDC-specific law exists in India. However, calls for a Digital Currency Bill are growing. Key legislative needs include:
Digital Rupee Act to define issuance, user rights, privacy, and redress.
Harmonization with the Data Protection Bill and IT laws.
Enshrining right to anonymity, non-surveillance guarantees, and non-discrimination in access.
The Finance Ministry and RBI have informally indicated that a statutory framework is in development, but no timeline has been committed.
CONCLUSION
The Digital Rupee marks a bold leap into the future of finance, offering India a powerful tool for efficiency, inclusion, and economic modernization. However, in the absence of a dedicated legal framework, this innovation risks exposing citizens to unchecked surveillance, regulatory opacity, and constitutional infringement. To prevent the erosion of privacy and financial autonomy, India must transition from executive-driven rollout to democratically anchored legislation, guided by robust parliamentary scrutiny and public accountability. By embedding privacy, equity, and user rights into the legal architecture of CBDC, the Digital Rupee can evolve not just as a digital currency, but as a global model for ethical and rights-based fintech innovation.
FAQS
Q1. Is the Digital Rupee currently legal tender?
Yes, it has been notified by the RBI as legal tender under its general powers, but lacks a specific legislative act.
Q2. Can RBI issue CBDCs without Parliament’s approval?
While RBI can experiment via pilot programs, full-scale adoption without statutory backing is constitutionally questionable.
Q3. Is the CBDC wallet private?
Currently, there are no statutory privacy guarantees, and transaction data may be stored or monitored.
Q4. What happens if Digital Rupee is hacked or lost?
No clear redressal mechanism or appellate forum exists yet. Users are currently not protected under the Banking Ombudsman Scheme.
Q5. Can the Digital Rupee aid financial inclusion?
Yes, if supported with inclusive design and rural access policies.
REFERENCES
Live Mint News Explained: What is Digital Rupee? RBI launches first pilot project today
https://www.livemint.com/news/india/explained-what-is-digital-rupee-rbi-launches-first-pilot-project-today-11667265156844.html
Article: The Future of Money or a Failing Experiment?
https://www.fticonsulting.com/insights/articles/central-bank-digital-currencies-india-future-money-failing-experiment
The Reserve Bank: Integrated Ombudsman Scheme, 2021
India’s digital currency frontier: Envisioning the future of CBDC (Nov 2024)
https://www.pwc.in/assets/pdfs/indias-digital-currency-frontier-envisioning-the-future-of-cbdc.pdf
