RBI's Role in Digital Rupee Conversion Rate

The question asks about the authority responsible for setting the conversion rate between the physical Indian rupee and the digital rupee in India. The digital rupee, often referred to as a Central Bank Digital Currency (CBDC), is a digital form of a country's fiat currency. Understanding the roles of various institutions is key to answering this.

Understanding the Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) is India's central bank and is responsible for the regulation of the Indian banking system. Its key functions include:

• Issuing currency notes and coins.
• Managing the country's currency system.
• Formulating and implementing monetary policy.
• Maintaining financial stability.

Given these responsibilities, particularly the management of the currency system, the RBI is the most logical authority to determine the conversion rate for a digital version of the rupee. For a CBDC like the digital rupee, the conversion rate against the physical cash is typically designed to be fixed at a 1:1 parity. This ensures simplicity and maintains the value proposition of the currency.

Analyzing Other Options

Let's look at why the other options are less likely:

• National Payment Corporation of India (NPCI): NPCI operates retail payments and settlement systems like UPI and RuPay. While involved in digital payments infrastructure, it does not set currency conversion rates or manage the overall currency supply.
• Ministry of Finance: The Ministry of Finance is responsible for the government's finances and economic policy. While it works closely with the RBI on economic matters, the direct operational control and regulation of currency, including digital forms, fall under the RBI's mandate.
• Market forces (Demand and Supply): Market forces typically determine exchange rates between different national currencies (e.g., INR vs USD). However, the conversion rate between the physical form and the digital form of the *same* currency (the Indian Rupee) is an internal monetary management decision, not subject to market fluctuations. A fixed 1:1 rate is essential for the stability and acceptance of a CBDC.

Conclusion

Therefore, the Reserve Bank of India is the entity responsible for determining the conversion rate between the physical rupee and the digital rupee, ensuring it remains stable and equivalent.