RBI’s Digital Rupee: 7 things to know - First retail pilot

,ET Online|

Dec 03, 2022, 11:32:12 AM IST

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First retail pilot

On December 1st, 2022, the Reserve Bank launched the first pilot programme for retail digital rupees (e-R). For this pilot's phase-by-phase participation, eight banks have been picked. The first phase would start with four banks in four locations throughout the nation: State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank. Four additional institutions, including Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank, will subsequently join this experiment.

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digital-ruppDefinition of CBDC

The legal cash issued by a central bank in digital form is known as CBDC (Digital Rupee (e)), according to the Reserve Bank of India. Similar to sovereign paper money but in a different format, it can be exchanged at par with current money and will be recognised as a means of payment, legal tender, and a secure place to keep wealth.

According to the Ministry of Finance, “CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies that have mushroomed over the last decade. Private virtual currencies sit at substantial odds to the historical concept of money. They are not commodities or claims on commodities as they have no intrinsic value.”

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Types of CBDCs

Two broad categories of CBDC can be distinguished: general-purpose or retail (CBDC-R) and wholesale (CBDC-W).

The private sector, non-financial customers, and enterprises might all potentially use retail CBDC (e-R), but wholesale CBDC (e-W) is only intended for certain financial institutions.

Retail CBDC is an electronic version of currency primarily intended for retail transactions, as opposed to Wholesale CBDC, which is intended for the settlement of interbank transfers and related wholesale transactions.

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Forms of CBDC

The structure of CBDC can be either "token-based" or "account-based." A token-based CBDC is a bearer instrument, similar to banknotes, meaning that whoever is in possession of the tokens at any one time is assumed to be their owner. In contrast, an account-based system would necessitate the upkeep of records of the transactions and balances of all CBDC holders as well as the identification of the owners of the financial balances.

“Considering the features offered by both the forms of CBDCs, a token-based CBDC is viewed as a preferred mode for CBDC-R as it would be closer to physical cash, while an account based CBDC may be considered for CBDC-W,” as per the release by Ministry of Finance.

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Features of CBDC

Here are important features of CBDC

· Sovereign currency issued by Central Banks

· Liability on the central bank’s balance sheet

· Accepted as a medium of payment, legal tender

· Freely convertible against commercial bank money and cash

· Holders need not have a bank account

· Lowers the cost of issuance of money and transactions

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Banks

RBI has identified nine banks for participation in the Digital Rupee’s wholesale pilot project, which are:
· State Bank of India

· Bank of Baroda

· Union Bank of India

· HDFC Bank

· ICICI Bank

· Kotak Mahindra Bank

· Yes Bank

· IDFC First Bank

· HSBC

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Conclusion

According to the Finance of Ministry release, “CBDC is aimed to complement, rather than replace, current forms of money and is envisaged to provide an additional payment avenue to users, not to replace the existing payment systems. Supported by state-of-the-art payment systems of India that are affordable, accessible, convenient, efficient, safe and secure, the Digital Rupee (e?) system will further bolster India’s digital economy, make the monetary and payment systems more efficient and contribute to furthering financial inclusion”

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RBI’s Digital Rupee: 7 things to know - First retail pilot - The Economic Times (2024)

First retail pilot

digital-ruppDefinition of CBDC

Types of CBDCs

Forms of CBDC

Features of CBDC

Banks

Conclusion