The Digital Rupee (e) or E-Rupee is a projected digital version of the Indian Rupee to be released as a central bank digital currency by the Reserve Bank of India (RBI) (CBDC). The Digital Rupee was planned in January 2017 and introduced in the fiscal year 2022-23. The RBI has recruited at least five lenders to collaborate in the central bank’s digital currency retail pilot project:
- The State Bank of India
- ICICI Bank
- IDFC First Bank and
- HDFC Bank
What is CBDC?
The central bank issues digital currencies, which are analogous to Bitcoin, determined by the value of the country’s fiat currency. CBDCs are currently being developed and implemented in several countries. Because so many countries are looking into digital currencies, it’s critical to grasp what they are and what they signify for society. A CBDC is issued and controlled by a country’s monetary authority, sometimes known as the central bank. CBDCs can, but are not required, be built on blockchain.
In their investigation, the Federal Reserve Bank of Boston and the Michigan Institute of Technology’s Digital Currency Initiative discovered that distributed ledgers might impede the efficiency and scalability of a CBDC.
Everything you need to know about the pilot launch is included below:
The pilot would cover a limited number of sites in a closed user group (CUG) of participating customers and retailers. This pilot has chosen eight banks to take part in stages. State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank would be the first four institutions to participate in the first phase. It is carried out in four cities: Mumbai, New Delhi, Bangalore, and Bhubaneswar.
Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank will join the initiative as additional lenders. After that, the pilot expands to include Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. The pilot’s scope will cover more banks, users, and locations as needed.
Features of Digital Rupee
- CBDC is a sovereign currency that central banks issue through their monetary policies.
- It shows on the central bank’s balance sheet as a liability.
- All residents, businesses, and government entities must accept it as a medium of payment, legal tender, and secure store of value.
- CBDC may be readily exchanged into commercial bank money and cash.
- CBDC is fungible legal money that does not need holders to have a bank account.
How will it Work?
The e-R would be a digital token that would serve as legal money. It would be released in the same denominations as paper money and coins. It would be dispersed via intermediaries, such as banks. Person-to-Person (P2P) and Person Merchant transactions are possible (P2M). Trust, safety, and settlement finality would be physical currency characteristics of the e-R. Users can transact with e-R using a digital wallet provided by partner banks and kept on their mobile phones/devices.
It does not earn interest and, like cash, may be converted to other forms of money, such as bank deposits. The trial will test real-time digital rupee production, distribution, and retail usage.
Types of CBDC that could be introduced
The Central Bank Digital Currency is divided into two types: general purpose or retail (CBDC-R) and wholesale (CBDC-W) (CBDC-W). Retail CBDC can be used by anybody, including the private sector, non-financial clients, and businesses. CBDC wholesale is only offered to a small number of financial institutions. While retail CBDC is primarily for retail transactions, wholesale CBDC is for the settlement of interbank transfers and related wholesale operations.
As a direct liability of the central bank, retail CBDC gives access to secure money for payment and settlement. Wholesale CBDC has the potential to change financial transaction settlement processes, making them more efficient and secure. Based on both potentials, it is worth introducing both CBDC-W and CBDC-R.
What a user must know?
- Instead of physical cash, the bank will issue digital tokens. The retail e-rupee will be an electronic currency equivalent designed primarily for retail transactions.
- It has the potential to be used by everyone — the private sector, non-financial consumers, and enterprises — and will be able to give access to secure money for payment and settlement.
- The digital token is stored in a digital wallet application.
- Transactions are done between persons who have digital wallets.
- The pilot program with four banks and four cities.
