The Reserve Bank of India (RBI) recently launched the first pilot of retail digital Rupee (e₹-R) within a closed group comprising participating customers and merchants. The digital rupee is in the form of a digital token representing legal tender.

The central bank is currently testing the robustness of the entire process of digital rupee creation, distribution and retail usage in real-time. It is expected to be used for payments and transactions.

The digital rupee (e₹-R) would be distributed through banks. According to RBI, users can make transactions with digital rupees through a digital wallet offered by participating banks and stores on mobile phones/devices. While several other use cases may come up in future, the digital rupee, on its own, won’t earn interest like deposits in a savings account.

Also Read: Digital Rupee for India is here but not everyone can use it right away, here’s why

Why Digital Rupee doesn’t earn interest

The digital rupee is like a digital iteration of physical cash, issued as digital tokens in the same denominations as paper currency notes. Just like cash sitting in your wallet doesn’t interest on its own, the digital rupee also doesn’t earn any interest while you keep it in your digital wallet. The digital wallet to hold e₹-R will be offered by banks.

Can you do Fixed Deposit with digital rupees?

As you can earn interest by depositing cash in the bank, you may be able to do the same with the digital rupee also in future. Even the Government says that it may be converted into other forms of money like deposits with banks.

“The e₹-R is in the form of a digital token that represents legal tender. It is being issued in the same denominations as the paper currency and coins. It is being distributed through banks. Users will be able to transact with e₹- R through a digital wallet offered by the participating banks. Transactions can be both Person to Person (P2P) and Person to Merchant (P2M),” Union Minister of State in the Ministry of Finance Pankaj Chaudhary said in a written reply to a query in Rajya Sabha on Tuesday (December 13, 2022).

“The e₹-R offers features of physical cash like trust, safety and settlement finality. As in the case of cash, it does not earn any interest and can be converted to other forms of money, like deposits with banks,” he added.

Also Read: Digital Rupee (wholesale) details

Types of transactions possible with digital rupee

With the digital rupee, transactions can be made both person-to-person (P2P) and person-to-merchant (P2M). It can be used to make payments using QR codes displayed at merchant locations.

According to Chaudhary, future use cases may include cross-border payments as well.

“Various use cases, technological architecture and design features are being tested during the pilots. Use cases may include cross-border payments (wholesale and retail), offline functionality etc. Further steps, including expansion of use case, has to be through a phased implementation strategy on the basis of feedback received during the pilots,” he said.

Banks involved in first pilot

Eight banks are participating in the first pilot of the digital rupee. These are the State Bank of India, ICICI Bank, Yes Bank, IDFC First Bank, Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank.