The Reserve Bank of India (RBI) launched the digital rupee, known as the Central Bank Digital Currency (CBDC). On December 1, the Reserve Bank of India (RBI) will launch its first retail digital rupee (e-R) pilot.
The central bank stated in an official statement that the currency would be in the form of a digital token representing legal tender.
The release stated that it would be issued in the same denominations as paper currency and coins are currently issued.
It went on to say that the pilot would be limited to a few locations in a closed user group (CUG) of participating customers and merchants.
According to the RBI, the digital rupee will be distributed through banks and users will be able to transact with it via a digital wallet offered by participating banks and stored on mobile phones/devices.
However, just like cash, digital currency does not earn interest and can be converted to other forms of money, such as bank deposits.
The central bank also stated that e-R transactions can be both person to person (P2P) and person to merchant (P2M).
‘Eight banks to participate first’
According to the RBI, eight banks have been identified for phase-wise participation in this pilot. State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank are among them. The four banks will take part in the first phase across 4 cities in the country.
The RBI stated that four more banks, namely Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank, will join this pilot later.
“The pilot would initially cover four cities, viz., Mumbai, New Delhi, Bengaluru and Bhubaneswar and later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. The scope of pilot may be expanded gradually to include more banks, users and locations as needed,” the central bank said.
What is CBDC?
The RBI explains CBDC as legal tender issued by a central bank in a digital form. “It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different,” writes the RBI on its website.
In simple terms, the CBDC is the digital version (in electronic form) of fiat currencies, in this case India’s domestic currency rupee.
In the case of a digital rupee, instead of holding a note, you will be holding a digital currency in your phone and it will be with the central bank and from there it will be
transferred to any merchant. It is fully backed by the sovereign.
The RBI explained that it would appear as liability (currency in circulation) on a central bank’s balance sheet.
Though the idea of a CBDC is inspired by Bitcoin, they are different from crypto assets, which do not possess ‘legal tender’ status and are not issued by the state.