India takes 'E-normous' step as e-rupee rolls out in 4 cities on pilot basis today
The digital rupee is in the form of a digital token that represents legal tender, and users will be able to transact with e₹-R through a digital wallet offered by participating banks and stored on mobile phones/devices.
New Delhi, Dec 01: As India launches digital rupee on a pilot basis today, it joins the exclusive group of nations that have embarked on the e-rupee journey already.
The Reserve Bank of India (RBI) has announced that the digital rupee also known as central bank digital currency (CBDC) or e-Rupee would initially cover four cities - Mumbai, Delhi, Bengaluru and Bhubaneswar - and will later be extended to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla.
The digital rupee would be in the form of a digital token that represents legal tender, the RBI said. "The pilot would cover select locations in closed user group (CUG) comprising participating customers and merchants. It would be issued in the same denominations that paper currency and coins are currently issued. It would be distributed through intermediaries, i.e., banks," RBI said in a statement.
"Users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones/devices. Transactions can be both Person to Person (P2P) and Person to Merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations," the statement said.
What is Digital Rupee?
The digital currency by the Reserve Bank of India will be based on blockchain technology, the technology behind Bitcoin and other popular cryptocurrencies. Digital Rupee will be of two types - retail and wholesale. Retail digital currency is for common people and companies, wholesale is meant for financial institutions.
Digital rupee features
The digital rupee would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks.
The pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. Different features and applications of the e₹-R token and architecture will be tested in future pilots, based on the learnings from this pilot.
8 banks identified
As many as eight banks have been identified for phase-wise participation in this pilot, the RBI said. The first phase will begin with four banks-- State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank - in four cities across India.Four more banks, including Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank, will join this pilot subsequently.
What is the need for a Digital Rupee?
As India embarks on its e-rupee journey, several countries are developing CBDC. Among the G20 countries, 19 are exploring a CBDC, with 16 already in the development or pilot stage. They include South Korea, Japan, India and Russia, according to The Atlantic Council's Geoeconomic Centre, an independent organisation based in Washington, D.C. About 2 years ago, in May 2020, only 35 countries were thinking of issuing a CBDC.
Advantages of CBDC
- CBDCs make the implementation of monetary and fiscal policy easier.
- It is accepted as a medium of exchange, value of store all over the country.
- It can be converted into commercial bank money and cash.
- Dependency on cash will be reduced Cost of transaction will be less.
- Each unit is uniquely identifiable to prevent currency fraud, much like with paper money.
- It is a sort of digital payment instrument that may be used with all kinds of digital payment services and systems to store, transfer, and send payments.