UPSC Prelims 2026Question 90Economy

Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct ?

Options

(a)UPI is a real-time payment system but Digital Rupee is akin to sovereign paper currency.
(b)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.
(c)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.
(d)In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks.

Correct answer: d

Decision rule

Bank deposits are a commercial bank's liability; digital currency, like cash, is the central bank's - statements equating the two on liability are false.

Explanation

Correct Answer

(d) In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks.

Explanation of the Correct Answer

The question asks for the not correct statement.

The incorrect statement is (d) because the liability position is different in UPI and Digital Rupee.

In UPI, money is transferred between bank accounts. The balance in a bank account is a liability of the respective commercial bank.
In Digital Rupee / e₹, the value is a Central Bank Digital Currency (CBDC). It is a digital form of sovereign currency issued by the Reserve Bank of India. RBI describes e₹ as similar to physical cash stored in a digital wallet, and CBDC is generally understood as a direct claim on the central bank. (Reserve Bank of India)

Therefore, it is wrong to say that in both UPI and Digital Rupee, the liability lies with the users and their respective banks. In the case of Digital Rupee, the ultimate liability lies with the central bank, not the commercial bank.

Why Other Options Are Incorrect

Option	Verdict	Explanation
(a) UPI is a real-time payment system but Digital Rupee is akin to sovereign paper currency.	Correct statement	UPI is a real-time payment interface linked to bank accounts, while Digital Rupee is a digital form of sovereign currency, similar in value to physical cash.
(b) In UPI, settlement for end users happens instantly as money gets debited or credited; in Digital Rupee, there is no settlement as wallet balance gets transferred to another wallet.	Correct statement	UPI involves movement between bank accounts, while Digital Rupee transfer is closer to transfer of digital cash/token from one wallet to another.
(c) UPI transactions are recorded by banks and reflected in bank statements, but in Digital Rupee, no data is captured in bank statements as transactions are from one wallet to another.	Correct statement	UPI transactions appear in bank statements. Digital Rupee wallet-to-wallet transfers generally happen within e₹ wallets and are not ordinary bank-account entries, except when loading or redeeming the wallet.
(d) In both cases, liability lies with users and their respective banks.	Incorrect statement	In UPI, the money is commercial bank money. In Digital Rupee, the value is central bank money issued by RBI; hence liability does not lie with the user’s bank in the same way.

Relevant Supplementary Information

UPI vs Digital Rupee

Basis	UPI	Digital Rupee / e₹
Nature	Real-time payment system	Central Bank Digital Currency
Issued by	Not issued as currency; it is a payment interface	Reserve Bank of India
Underlying money	Bank deposit money	Sovereign digital currency
Liability	Commercial bank liability	Central bank liability
Where value is held	Bank account	Digital Rupee wallet
Transaction type	Bank account to bank account transfer	Wallet to wallet transfer
Bank statement impact	Reflected in bank statement	Wallet transfers generally not reflected as bank-account transactions
Settlement requirement	Yes, as inter-bank payment settlement is involved	No similar inter-bank settlement for pure wallet-to-wallet transfer
Comparable to	NEFT/IMPS-like digital payment interface, but real-time and mobile-based	Physical cash in digital form

Basis	UPI	Digital Rupee / e₹
Full form	Unified Payments Interface	Digital form of Indian rupee
Nature	Payment system / payment interface	Central Bank Digital Currency
Issued by	Not issued as currency; operated as a payment rail	Issued by Reserve Bank of India
Underlying money	Bank deposit money	Central bank money
Liability lies with	Commercial bank holding the deposit	Reserve Bank of India
Where value is stored	Bank account	Digital Rupee wallet
Transaction type	Bank account to bank account transfer	Wallet to wallet transfer
Settlement	Settlement happens through the banking system	No similar inter-bank settlement in pure wallet-to-wallet transfer
Bank statement entry	Yes, reflected in bank statement	Wallet-to-wallet transfer generally not reflected in bank statement
Comparable to	IMPS-like instant payment interface	Physical cash in digital form
Main function	Enables instant digital payments	Provides sovereign digital currency
Example	Paying a merchant through PhonePe, Google Pay, BHIM	Transferring e₹ from one digital wallet to another

Understanding Liability in Payment Systems

Instrument / System	What It Represents	Whose Liability?
Cash	Physical sovereign currency	Reserve Bank of India / sovereign monetary authority
Digital Rupee	Digital sovereign currency	Reserve Bank of India
Bank deposit	Money held in bank account	Commercial bank
UPI transaction	Transfer of bank deposit money	Respective banks involved
Wallet balance in private wallet	Prepaid balance	Wallet issuer, subject to regulation
Cheque	Instruction to transfer bank deposit money	Bank account-based liability

Key Takeaways from the Tables

Point	Explanation
UPI is not currency	It is a payment system that moves money between bank accounts.
Digital Rupee is currency	It is sovereign currency in digital form, issued by RBI.
UPI uses commercial bank money	The balance belongs to a bank account and is a liability of the bank.
Digital Rupee uses central bank money	The e₹ is a liability of the central bank, similar to cash.
Bank statement distinction is important	UPI appears in bank statements; wallet-to-wallet e₹ transfers generally do not.
The incorrect option is about liability	Option (d) wrongly treats UPI and Digital Rupee as having the same liability structure.

Point	Explanation
UPI is a payment mechanism	It transfers bank deposit money from one bank account to another.
Digital Rupee is money itself	It is a digital form of sovereign currency issued by RBI.
Liability is the key difference	UPI balance is commercial bank liability; Digital Rupee is RBI liability.
Settlement differs	UPI requires banking-system settlement; wallet-to-wallet Digital Rupee transfer does not operate in the same way.
Bank statement distinction matters	UPI appears in bank statements; e₹ wallet transfers generally do not.
Cash and Digital Rupee are closer conceptually	Both represent central bank money, one physical and the other digital.

Context and Current Relevance

The Digital Rupee is part of RBI’s exploration of Central Bank Digital Currency as a digital equivalent of cash.
The key conceptual difference is that UPI digitizes payments, while Digital Rupee digitizes currency itself.
This distinction matters for settlement, privacy design, banking intermediation, and monetary policy.

Table: UPI, Digital Rupee, Cash, and Bank Deposit

Parameter	Cash	Bank Deposit	UPI	Digital Rupee
Form	Physical money	Account balance	Digital payment mechanism	Digital sovereign money
Issued / provided by	RBI	Commercial bank	NPCI-enabled payment system through banks/apps	RBI
Underlying value	Sovereign currency	Commercial bank money	Bank deposit money	Sovereign currency
Liability	RBI	Commercial bank	Commercial bank	RBI
Requires bank account?	No	Yes	Yes	Wallet-based; bank account needed mainly for loading/redeeming in current design
Appears in bank statement?	No	Yes	Yes	Wallet transactions generally no; loading/redeeming may appear
Settlement needed?	No	Not applicable for holding	Yes, through banking/payment system	No similar settlement in wallet-to-wallet transfer
Offline possibility	Yes	No	Generally internet/payment network dependent	Can be designed for offline use
Privacy character	High relative anonymity	Bank records available	Bank records available	Designed to be cash-like, but privacy depends on RBI framework and transaction design

Table: Important Concepts Related to Digital Payments

Concept	Meaning	Example / Relevance
Payment rail	Infrastructure used to move money	UPI, NEFT, RTGS, IMPS
Commercial bank money	Money held as deposits in bank accounts	Savings account balance used in UPI
Central bank money	Money issued by the central bank	Cash and Digital Rupee
Settlement	Final transfer of funds between financial institutions	UPI inter-bank settlement
Wallet-to-wallet transfer	Direct transfer of stored value between two digital wallets	Digital Rupee transfer
CBDC	Central Bank Digital Currency	Digital Rupee issued by RBI
Token-based money	Value represented as a digital token, similar to cash	Retail Digital Rupee design
Account-based money	Value linked to an account and verified through account identity	Bank deposits and UPI
Interoperability	Ability of different apps/systems to work together	UPI is highly interoperable
Legal tender	Money recognized by law for payment of debts	Cash and Digital Rupee

Table: Common Exam Traps: UPI vs Digital Rupee

Statement / Trap	Correct Understanding
UPI is digital currency	Incorrect. UPI is a payment system, not currency.
Digital Rupee is the same as UPI	Incorrect. Digital Rupee is sovereign digital currency; UPI is a payment interface.
Both UPI and Digital Rupee are liabilities of commercial banks	Incorrect. UPI uses bank deposits, while Digital Rupee is RBI liability.
Digital Rupee is like digital cash	Correct. It is designed as a digital form of sovereign currency.
UPI transactions appear in bank statements	Correct. UPI transfers are bank-account transactions.
Digital Rupee wallet-to-wallet transfers are normal bank-account entries	Incorrect. Wallet transfers generally happen outside ordinary bank-account statements.
Digital Rupee can reduce dependence on cash	Correct. It provides a digital alternative to physical currency.
UPI requires banks to move money	Correct. It transfers money between bank accounts through the payment system.
Digital Rupee requires settlement like UPI in every transaction	Incorrect. Pure wallet-to-wallet e₹ transfer does not work like inter-bank account settlement.

Table: Digital Payment Systems in India

System	Full Form / Meaning	Nature	Used For
UPI	Unified Payments Interface	Instant real-time payment system	Small and large digital payments through bank accounts
IMPS	Immediate Payment Service	Instant bank-to-bank payment system	24x7 account transfers
NEFT	National Electronic Funds Transfer	Batch-based electronic fund transfer system	Bank transfers, now available 24x7
RTGS	Real Time Gross Settlement	Real-time high-value fund transfer system	Large-value transactions
AePS	Aadhaar Enabled Payment System	Aadhaar-based payment system	Banking access through biometric authentication
BBPS	Bharat Bill Payment System	Integrated bill payment platform	Utility bills and recurring payments
NACH	National Automated Clearing House	Bulk payment system	Salaries, subsidies, EMIs, dividends
Digital Rupee	Central Bank Digital Currency	Sovereign digital currency	Digital cash-like payments

Open this in the study app →

Learn this in NCERT

Class 12Money and Banking — NCERT Economics, Chapter 3. Money is the commonly accepted medium of exchange that removes barter's need for a double coincidence of wants; it is also a unit of account and a store of value.…