Key Takeaways
- As of February 28, 2023, digital rupee worth over Rs 130 crore ($15.8 million) is in circulation on a pilot basis, according to Finance Minister Nirmala Sitharaman.
- The digital rupee – Wholesale is worth Rs 126.27 crore, while the digital rupee – Retail is worth Rs 4.14 crore.
- Nine banks, including State Bank of India, HDFC Bank, and ICICI Bank, are participating in the wholesale pilot.
- The digital rupee – Retail is in the form of a digital token representing legal tender, issued in denominations equivalent to paper currency and coins.
- The program allows users to transact with digital rupee – Retail through a digital wallet offered by participating banks and stored on mobile phones.
- Retail transactions are currently limited to select locations and merchants, including street vendors and petrol pumps, but the program may expand as feedback is received.
As the world moves towards digitalization, central bank digital currencies (CBDCs) have emerged as a significant development in the global financial landscape, potentially revolutionizing the way we transact and store value. India’s CBDC or the digital rupee pilot program, launched by the Reserve Bank of India (RBI), has seen over INR 130 crore ($15.8 million) worth of the digital currency issued and circulated across the retail and wholesale segments, according to finance minister Nirmala Sitharaman.
The Reserve Bank of India (RBI) has launched pilots for digital rupee in both wholesale and retail segments. The pilot for wholesale segment began on November 1, 2022, while the pilot for the retail segment started on December 1, 2022.
Nine banks are currently participating in the digital rupee wholesale pilot: State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC.
The program allows retail users to perform transactions with digital rupee. The digital rupee retail is being distributed through financial intermediaries, i.e., banks, and can be transacted through a digital wallet offered by participating banks.
During the pilot, the digital rupee retail is being tested in select locations, with on-boarded merchants from various segments like tea vendors, fruit sellers, street-side and sidewalk vendors, small shopkeepers, and institutional merchants such as retail chains and petrol pumps. Feedback received during the pilot will be used to determine further steps and expansion of use cases in a phased implementation strategy.
CBDC is gaining traction
Central Bank Digital Currency (CBDC) is gaining traction as many central banks around the world are exploring and launching their own digital currencies.
According to Atlantic Council CBDC tracker, 114 countries that represent over 95% of global GDP are exploring the concept of CBDC, which is a significant increase from the 35 countries that were considering it in May 2020. Among these countries, 60 are in an advanced stage of exploration, including development, pilot, or launch phases.
The same report says that 11 countries have already fully launched their own digital currency, while China’s pilot program, which currently serves 260 million people, is set to expand to cover most of the country in 2023. Recently, Jamaica also launched its own CBDC, known as JAM-DEX.
By December 2022, the G7 nations have transitioned into the development stage of CBDC, according to the same report. Additionally, the New York Federal Reserve’s wholesale CBDC experiment, Project Cedar, has propelled the United States from the research phase into development.
Out of the G20 nations, 18 are now in the advanced stage of CBDC development, and seven of them are currently conducting pilot runs. Over the last six months, almost all G20 countries have made significant strides and allocated additional resources to these initiatives.
In a CBDC related development, Swift, the global financial messaging network, reported earlier this month that its experimental API-based solution for interlinking CBDCs of different countries has been found to have “clear potential and value” following a comprehensive review by 18 central and commercial banks.
Central banks see CBDC as an alternative to cryptocurrency
The main reason for this trend is the growing importance of cryptocurrency payments and the need for central banks to keep up with the rapidly evolving financial landscape.
The rise of cryptocurrencies and digital payment systems such as PayPal and Venmo have challenged traditional banking systems and led to concerns about financial stability and control.
CBDCs have the potential to provide a safer, more efficient, and more accessible alternative to cash and traditional banking systems. By creating their own digital currencies, central banks can offer secure and reliable payment systems that can be accessed by a wide range of users, including those who are unbanked or underbanked.
CBDCs also have the potential to reduce transaction costs and increase financial inclusion, as well as to provide more transparent and traceable payment systems that can help to combat money laundering and other financial crimes.
Another factor driving the launch of CBDCs is the need for central banks to maintain control over monetary policy and ensure financial stability. By creating their own digital currencies, central banks can better monitor and control the flow of money within the economy, as well as respond more quickly to changes in the economic landscape.
CBDCs can also help to reduce the risks associated with bank runs and other financial crises, as they provide a safe and reliable alternative to traditional banking systems.
Overall, the launch of CBDCs represents a significant shift in the financial landscape and highlights the growing importance of digital payments and blockchain technology. While there are still many questions and concerns surrounding CBDCs, they have the potential to provide a more accessible, efficient, and secure payment system that can benefit individuals, businesses, and governments alike. As such, it is likely that we will see continued growth and adoption of CBDCs in the coming years as more central banks explore this technology and its potential benefits.
Read Also: Nandan Nilekani: CBDC will solve for wholesale cross-border transactions while UPI goes global
