After launching Central Bank Digital Currency (CBDC)- a digital form of currency notes- for the wholesale segment, the Reserve Bank of India (RBI) has now announced its availability for retail users starting December 1. The bank will first launch the pilot for retail digital Rupee (e₹-R) to test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. This will help the bank work on any shortcomings, if found any in the first pilot, and do better testing of the program’s architecture in future pilots.
The first pilot run will be conducted across select locations and amongst a closed user group (CUG) comprising participating customers and merchants.
The government announced the launch of Central Bank Digital Currency (CBDC) from FY 2022-23 onwards in the Union Budget presented in the Parliament on February 01, 2022. It hopes that CBDC will help boost the economy of India by reducing the operational costs required in physical cash management.
The government believes that CBDC will also boost financial inclusion, resilience, efficiency, and innovation in payments system. It is said to improve the current settlement system and bring innovation in cross-border payments space.
“The use of offline feature in CBDC would also be beneficial in remote locations and offer availability and resilience benefits when electrical power or mobile network is not available,” RBI highlights in its press release.
RBI defines CBDC as the legal tender issued by a central bank in a digital form. It can be seen as a digital form of the physical currency. CBDC is exchangeable with the existing currency and shall be accepted as a medium of payment, legal tender and a safe store of value.
The e₹-R would be in the form of a digital token that will be issued in the same denominations that paper currency and coins are currently issued. It would be distributed through banks that will act as intermediaries. Users will be able to transact with e₹-R through a digital wallet offered by these banks that needs to be stored on mobile phones or 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.
RBI has roped in eight banks for phase-wise participation in this pilot. The first phase will begin with four banks- State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank across four cities of the country. Four more banks- Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank will join this pilot subsequently.
The pilot would initially be available in four cities – Mumbai, New Delhi, Bengaluru and Bhubaneswar and later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla.