RBI Launches Pilot Digital Rupee In India

RBI Launches Pilot Digital Rupee In India

Finance Tech

During the budget session of  2022,  Finance Minister, Nirmala Sitharaman stated digital rupee is a conscious call taken with the Central Bank (RBI) of India.  

In October 2022, The Union Government announced that the Reserve Bank Of India would soon launch the e-Rupee in India. With the aim of providing the public with the benefits of virtual currencies along with providing consumer protection, CDBC makes payments more efficient, trusted and robust. 

On November 1, 2022, RBI launched its first pilot digital rupee in India for the wholesale segment. In this phase, the wholesale segment can use the digital Rupee for the settlement of secondary market transactions in government securities. The digital rupee will be donated by e₹-W and will be expected to enhance the efficiency of the inter-bank market.

The pilot phase of the digital rupee will see nine banks that are SBI, HDFC Bank, Yes Bank, Bank Of Baroda, Kotak Mahindra Bank, ICICI Bank, Union Bank of India, IDFC First Bank, and HSBC. 

RBI released a concept note on Central Bank Digital Currency (CBDC) mentioning the phased pilot launch of digital currency. The initial phase of digital currency will be for specific use only as it tests the potential of digital currency in India. 

 

The final decision on the launch of digital currency will be taken by RBI only on the basis of the outcome of the pilot launch. The digital Rupee (e₹) will provide an additional alternative to the current forms of money. However, it will not be substantially different from banknotes, but being digital, it will be a lot easier, faster and cheaper to use. 

Digital Rupee
Source: Jagran Josh

CDBC Brings Stability to Financial Systems

Imbibing all the possible features of physical currency, CDBC can be structured as ‘token-based’ or ‘account-based’. RBI stated, “The design of CBDC is dependent on the functions it is expected to perform, and the design determines its implications for payment systems, monetary policy as well as the structure and stability of the financial system.” 

In the concept note, RBI lays out the plans for the technology, design, use and issuance of digital currency.  

“With the advent of cutting-edge technologies, the digitalization of money is the next milestone in monetary history. Advancement in technology has made it possible for the development of new forms of money viz. Central Bank Digital Currencies (CBDCs),” mentioned in the concept note. 

Since RBI announced the launch of Digital currency, it became a topic for discussion among the general public. Many are still confused concerning the features and structure of CDBC. Let’s quickly discuss the key features of CDBC that will help you understand the concept of digital currency easily:

  • E-Rupee will be issued by RBI and recognized by the Government of India. Hence,  the legality of digital currency cannot be questioned at any point in time. 
  • According to RBI, CDBC will hold the unique advantage of Central Bank Money and will have liquidity, trust, safety and settlement finality. Boosting innovation, CDBC makes an effective payment space providing the public access to all those facilities offered by private virtual currencies without the risk associated.
  • People can easily send or receive money from whomsoever is concerned with the digital avatar of e-Rs. To send money, the sender needs to enter a private key or password to send money. It is also said that people can use the digital currency without even accessing the internet. However, this is yet to be clarified by RBI.

The State Of CBDC In Other Countries

Till now 10 countries have launched digital currencies out of which Jamaica is the latest country to launch it. Countries including China, Nigeria and other European countries have already launched their digital currencies. Many of the world’s largest economies including India, Japan, Russia and South Korea are exploring the options of CDBC.  

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