Consider the following statements in respect of the digital rupee:

1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy.
2. It appears as a liability on the RBI's balance sheet.
3. It is insured against inflation by its very design.
4. It is freely convertible against commercial bank money and cash. Which of the statements given above are correct?

The Reserve Bank of India (RBI) defines Central Bank Digital Currency (CBDC), or the digital rupee, as the legal tender issued by a central bank in digital form.

It is considered a sovereign currency and is exchangeable one-to-one (1:1) at par with fiat currency.

Key features of CBDC:

• Sovereign currency issued by Central Banks in alignment with their monetary policy. Hence statement 1 is correct.
• Appears as a liability on the central bank’s balance sheet. Hence statement 2 is correct.
• Must be accepted as a medium of payment, legal tender, and a safe store of value by all citizens, enterprises, and government agencies.
• Freely convertible against commercial bank money and cash. Hence statement 4 is correct.
• Fungible legal tender for which holders need not have a bank account.
• Expected to lower the cost of issuance of money and transactions.

CBDC, like physical currency, is not inherently insured against inflation. While the data collected through CBDCs has the potential to be paired with strict reserve requirements for commercial banks to control inflation, it's not a built-in feature. Hence statement 3 is not correct.

Therefore, the correct answer is that statements 1, 2, and 4 are correct.