Less than a month after testing the digital rupee in the wholesale segment, the Reserve Bank of India (RBI) on Tuesday announced the launch of the first pilot of the retail digital rupee (e₹-R) on December 1. This important announcement will allow people to use India’s first Central Bank Digital Currency (CBDC) for retail purchases.
What is Retail Digital Rupee?
It is India’s first central bank digital currency (CBDC), or a digital or virtual currency, that can be used for retail purchases. Like paper currency, it is also issued by the Reserve Bank of India. “The e-R will be in the form of a digital token representing legal tender,” RBI said on Tuesday.
In her Budget 2022-23 speech earlier this year, Finance Minister Nirmala Sitharaman said that the RBI will introduce a digital currency during the ongoing financial year to promote the digital economy and for efficient currency management.
How can you use it?
The RBI on Tuesday said users will be able to transact with digital rupee, or e-R, through digital wallets offered by participating banks and stored on mobile phones/devices. Transactions can be both person-to-person (P2P) and person-to-merchant (P2M).
The distribution of retail digital rupee will be done through intermediaries, ie banks.
Which banks will distribute the digital rupee and its denominations?
According to the RBI statement, eight banks have been identified for phased participation in this pilot. The first phase will start with four banks – State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank in four cities across the country. Four more banks – Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank – will join the pilot later.
“It will be issued in the same denominations in which paper currency and coins are issued at present,” the RBI said.
Will it be rolled out across India on 1st December?
No. RBI said the pilot will initially cover four cities – Mumbai, New Delhi, Bengaluru and Bhubaneswar – and later expand to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. The pilot can be gradually scaled up to include more banks, users and locations, as required.
“The pilot will cover select locations in a Closed User Group (CUG) of participating customers and merchants,” RBI said.
Is Digital Rupee Same as Crypto Currency?
The Digital Rupee is a CBDC, or a digital or virtual currency. This is in contrast to private virtual currencies or cryptocurrencies, including bitcoin, ethereum, etc., which have rapidly emerged over the past decade. Private virtual currencies do not represent debts or liabilities of any individual as there is no issuer.
what the experts say
Jyoti Prakash Gadia, Managing Director, Resurgent India, said, “This indicates the consistent efforts on the part of the RBI to bring in an efficient, user-friendly system of digital currency, far ahead of other central banks around the world.”
Gadia said the model chosen for retail rupee is different from the one announced earlier for wholesale rupee which is being used by banks for government security transactions. “The token-based mechanism announced by the RBI for retail is more conducive to individual customer transactions with selected merchants for common retail customers and also for individual customer transactions with other individuals, initially to be used within the selected closed group “
Jaya Vaidyanathan, CEO of BCT Digital, said, “The Reserve Bank of India’s (RBI) central bank digital currency (CBDC) aims to deliver on the promise of affordable, secure and easy payments for all. Offering a regulated alternative, a CBDC will lead to more robust and reliable payments, thereby reducing dependence on cash.”
Vaidyanathan said the underpinning technology would lower transaction costs. Being interoperable with other payment systems, it will complement existing technologies like UPI, thus completing the mobile payments ecosystem.
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