Operationalisation of Central Bank Digital Currency – Retail (e₹-R) Pilothttps://t.co/Coh632lCwU
— ReserveBankOfIndia (@RBI) 1669716045000
What is the retail Digital Rupee pilot project?
RBI has divided the digital rupee into two categories — retail and wholesale. The digital rupee for the wholesale segment was announced on November 1 which is mainly used by banks to settle secondary market transactions in government securities. Meanwhile, the retail version of the digital currency can be accessed by the end users to make daily transactions.
Retail Digital Rupee pilot project: Availability
The first phase of the retail Digital Rupee pilot project will cover select locations and banks. RBI has also mentioned that during the pilot the digital currency will be available in a closed user group (CUG) which comprises participating customers and merchants.
RBI has confirmed that the pilot will initially cover four cities — New Delhi, Mumbai, Bengaluru and Bhubaneswar. The controlled launch of the digital currency in these cities will involve four banks — State Bank of India, Yes Bank, ICICI Bank and IDFC First Bank. Customers and merchants residing in the above-mentioned cities and having their accounts in these banks will be able to use the digital rupee.
The central bank has also noted that the service will be subsequently extended to more cities including — Hyderabad, Ahmedabad, Guwahati, Lucknow, Indore, Patna, Kochi, Shimla and Gangtok. Four more banks including — HDFC Bank, Kotak Mahindra Bank, Union Bank of India and Bank of Baroda will also be added to the pilot soon. RBI has also suggested that the digital rupee pilot will later expand to more banks and locations if everything goes as planned.
How will the retail Digital Rupee work
The e-rupee will be an electronic version of cash which is expected to be available to all the private sector, non-financial consumers and businesses. This version of the digital currency will be used mainly for retail transactions. Since it will be the direct liability of the central bank, the e-rupee will be able to offer access to safe money for payments and settlement.
Digital Rupee will be issued in the same denominations as the available paper currency and coins. RBI will also distribute digital currencies through banks and users will be able to make transactions with the digital tokens via the respective digital wallets offered by the different participating banks.
Users can make both consumer-to-consumer (C2C) transactions as well as consumer-to-business (C2B) transactions with the upcoming digital currency. The QR codes displayed at retail locations can also be used to pay businesses.
Advantages of the digital rupee
While introducing the digital rupee, RBI expressed that the e-rupee will be able to reduce the operational costs required for physical cash management. Apart from that, the digital tokens will not only help in fostering financial inclusion but will also bring resilience. Moreover, digital currency is also expected to increase efficiency and innovation in the payments system.
RBI has raised repeated concerns related to private cryptocurrencies like Bitcoin, Ether, etc. which include terror financing, tax evasion, money laundering and more. However, CBDCs are designed to bridge the gap between the advantages and risks of digital currency.