RBI announces launch of its first retail digital rupee programme

Reserve Bank of India

The Reserve Bank of India announces the introduction of the first retail digital Rupee (e₹-R) experiment on December 1, 2022. It may be noted that the RBI stated in a Press Release on October 31, 2022 that the pilot in e₹-R will begin in a month.

The pilot would cover a small number of sites in a closed user group (CUG) of participating customers and retailers. The e₹-R would take the shape of a digital token that would serve as legal money. It would be issued in the same denominations that paper currency and coins are currently issued. It would be dispersed via middlemen, such as banks.

Users will be able to transact with e₹-R using a digital wallet which is provided by partner banks and kept on their mobile phones or devices. Person to Person (P2P) and Person to Merchant (P2M) transactions are both possible (P2M). QR codes shown at merchant locations can be used to make payments to retailers. The e₹-R would have physical currency characteristics such as trust, safety, and settlement finality. It will not generate interest and, like cash, can be changed to other types of money, such as bank deposits.

The pilot will put the whole process of digital rupee generation, distribution, and retail usage to test in real-time. Based on the results of this pilot, further features and uses of the e₹- R token and architecture will be examined in future pilots.

Jaya Vaidhyanathan, CEO, BCT Digital, stated that “The Reserve Bank of India’s (RBI) Central Bank Digital Currency (CBDC) aims to fulfill the promise of affordable, safer, and easier payments for all. Since it provides a regulated alternative to cryptocurrencies in the market, the CBDC would lead to more robust and reliable payments, lowering the dependency on cash. The underpinning technology would make transaction costs low. Being interoperable with other payment systems, it will complement existing techniques like UPI, thus completing the mobile payments ecosystem.

India’s CBDC imperative, in line with its recent digitalization efforts, is a remarkable feat, considering that India is one of the few countries (among both developed and developing nations) that have attempted this. While the central bank had earlier commenced a pilot for CBDC in the wholesale market for secondary trade in government securities, the retail segment project is now ready for take-off as well. Banks are now tying up with last-mile fintech service providers on facilitating the initial set of transactions between customers and merchants.

The CBDC’s interoperability with other payment systems will certainly contribute to enhanced adoption, co-existence, and innovation, and ultimately result in efficiency and convenience for end-users. The CBDC has some inherent benefits, being a sovereign currency. The primary advantage is that it ensures settlement finality and reduces settlement risks in the financial system.

Thus, the e-rupee offers the public enhanced access to digital money. Furthermore, it could provide a robust and safe foundation for private sector innovations to meet the current and future demands for payment services. It will also help in leveling the playing field in payment innovations for firms of all sizes.”

Aditya Damani, Founder and CEO of Credit Fair, on the launch of digital rupee said, “The launch of retail digital rupee on the pilot basis is an extremely encouraging development, as it will pave the way for a secure and efficient digital economy in the country. A regulated alternative to private virtual currencies, the retail digital rupee can be transacted through the digital wallets of participating banks. That way, e-rupee will make digital currency and the digital payment ecosystem more inclusive. Retail digital rupee will create a broad-based and secure digital currency ecosystem across the country banking on the rapidly-growing digital infrastructure of the country. ”

Licensed and compliant players will have an edge over Fintechs with other NBFC partnerships, and are likely to see rising market share in the future. The RBI wants to ensure that there is responsibility on the institutions they regulate. For the unregulated entities classified as LSPs (Lending Service Providers) there is almost an equal burden to abide by these rules. As a result, we foresee some level of filtration as these guidelines go into effect. This decision by the RBI will protect the consumer and level the playing field from the customer’s perspective.”

This pilot has selected eight banks to participate in stages. The first phase will begin with four banks across four locations throughout the country: State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank. Following this trial, four additional banks will participate: Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank. The pilot will begin in four cities: Mumbai, New Delhi, Bengaluru, and Bhubaneswar, and will eventually expand to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. As needed, the pilot’s scope may be gradually expanded to cover more banks, users, and locations.

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