Key Takeaways
- RBI said that the Digital Rupee will come in the same denomination as notes and coins.
- Four banks will participate initially; four more will join later.
- A select group of customers and merchants – closed user group (CUG) – will take part in the pilot.
- RBI aims to test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time.
- The trial will be conducted in Mumbai, New Delhi, Bengaluru and Bhubaneswar in the first phase.
India’s central bank, the Reserve Bank of India, today announced that it will launch the retail version of its digital currency on a test basis starting Thursday, a month after allowing some banks to use it for settling secondary-market transactions in government securities.
The Reserve Bank of India (RBI) has been exploring the possibility as to whether there is a need for CBDC, a digital version of fiat currency, and in case there is, then how to operationalize it.
According to the official statement, four banks will initially run the digital currency pilot, with another four joining at a later stage.
A select group of customers and merchants – closed user group (CUG) – will take part in the pilot and use the e-rupee as a replacement for hard cash. Digital currency would be issued “in the same denominations that paper currency and coins are currently issued,” the RBI said.
The digital currency would be in the form of a digital token that represents legal tender. It would be issued in the same denominations that paper currency and coins are currently issued.
It would be distributed through intermediaries, i.e., banks. Users will be able to transact with digital rupee through a digital wallet offered by the participating banks and stored on mobile phones / devices.
Transactions can be both Person to Person (P2P) and Person to Merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations. The digital rupee would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks.
By condunducting this pilot, RBI aims to test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. Different features and applications of the digital rupee token and architecture will be tested in future pilots, based on the learnings from this pilot.
Eight banks have been identified for phase-wise participation in this pilot. The first phase will begin with four banks, viz., State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank in four cities across the country.
Four more banks, viz., Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank will join this pilot subsequently.
The trial will be conducted in Mumbai, New Delhi, Bengaluru and Bhubaneswar in the first phase. In the second phase, it will be extended to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla.
“The scope of pilot may be expanded gradually to include more banks, users and locations as needed,” RBI said in a statement.
The interest in digital currency has grown significantly in the recent past – equally among retail as well as businesses.
Governments and central banks that were earlier reluctant to recognize Bitcoin and other digital currencies are now amid huge pressure with the growing adoption among enterprises. A trend has now emerged amongst Central banks to issue digital version of the fiat as there is little scope for them to counter public digital currencies like Bitcoin.
According to Atlantic Council CBDC tracker, 105 countries, representing over 95% of global GDP, are currently exploring a CBDC. In May 2020, only 35 countries were considering a CBDC. A new high of 50 countries are in an advanced phase of exploration (development, pilot, or launch).
The same report says that 10 countries have fully launched a digital currency, with China’s pilot set to expand in 2023. Jamaica is the latest country to launch a CBDC, the JAM-DEX. Nigeria, Africa’s largest economy, launched its CBDC in October 2021.
Read Also: The Reserve Bank Of India Planning Stakeholder Consultation On CBDC