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RBI launches first pilot of digital rupee today with participation from 9 banks

digital rupee
A digital rupee is a form of currency issued by a central bank that can be used in contactless transactions.

 

The Reserve Bank of India will commence India’s first digital rupee pilot project for the wholesale segment today. Nine banks, featuring both public and private players, have been identified for participation.

 

“The use case for this pilot is settlement of secondary market transactions in government securities. Use of e₹-W (whole segment)is expected to make the inter-bank market more efficient. Settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk,” the central bank said.

 

“Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot,” it added.

 

Nine banks which include 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 have been identified for participation in the digital rupee pilot project. The launch of the e-rupee for the retail segment is planned within a month in selected locations.

 

Finance Minister Nirmala Sitharaman, while announcing the union budget 2022, announced that digital currency would be rolled out soon. A Central Bank Digital Currency, or CBDC, is a digital form of currency issued by a central bank that can be used in contactless transactions. CBDC is bifurcated into two segments: retail (CBDC-R), which would likely be available for all, and wholesale (CBDC-W), which is designed for select financial institutions.

 

The central bank has been exploring the pros and cons of the digital rupee for some time now and is working on a strategy for its implementation in phases. The move towards e-currency comes amid the RBI’s staunch opposition to cryptocurrencies.

 

While cryptocurrencies use digitalized assets based on blockchain technology and operate without a financial intermediary like banks etc, digital currency is backed by the government and is legal tender issued by the country’s central bank. Some benefits of a digital rupee include reduced transaction costs and better control of the government over monetary transactions in the country. And since it is in electronic form, physical damage or loss is also not possible.

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