The Reserve Bank of India had been working on its own virtual or digital currency for some time and December 1 saw the official launch of its retail version. The currency, known as Central Bank Digital Currency (CBDC) will see a regulated test pilot with select customers and retailers / merchants.
Have a look at some important information on RBI’s digital rupee launch.
What is RBI digital rupee and how will it work?
The digital rupee initiative by RBI is quite interesting and a successful roll out can be a game changer.
Here are some key points that you should know about India’s Digital Rupee or E-Rupee:
- It is the official, legal tender to be issued by Indian central bank, the Reserve Bank of India, in the form of a digital token, known as CBDC, Digital rupee or e – Rupee
- It is the electronic form of sovereign / government backed currency
- It will be similar in denomination to existing coins and rupee currency notes
- Payment made through CBDC will be final and no further transaction or settlement would be needed
- The digital rupee can be stored on mobile phones through a digital wallet offered by the (participating & issuing) banks
- Transactions between two parties in the form of Person to Person (P2P) and Person to Merchant (P2M) will be allowed
- Merchant transactions could be completed through QR (Quick response) codes at merchant outlets
- It would be issued and redeemed by the RBI and distributed and managed by banks
- It will not be necessary to have a bank account to hold digital currency
- It will be risk free digital currency without any volatility associated with private virtual currencies
Where to get digital rupee?
Some of the banks that are participating in RBI’s digital rupee pilot are:
State Bank of India (SBI), ICICI Bank, Yes Bank and IDFC First Bank. As part of the first phase of the pilot, these banks will cater to four major cities namely New Delhi, Mumbai, Bhubaneswar and Bengaluru.
In the second phase, HDFC Bank, Bank of Baroda, Union Bank of India and Kotak Mahindra Bank will partner in the pilot for rollout in Ahmedabad, Guwahati, Gangtok, Patna, Shimla, Hyderabad, Lucknow, Kochi and Indore.
Types of Digital currency
Two types of digital rupee will be issued :
- Retail CBDC
Retail CBDC – R will be the common digital currency for use by the general public, consumers, private sector and businesses.
- Wholesale CBDC
Wholesale CBDC – W will be issued with limited and restricted access, to be used by banks and financial institutions for wholesale banking transactions and interbank settlements
Why do we need Digital Rupee?
The primary reasons cited by RBI for its digital currency launch are :
- Meet the surging demand for digital currencies, as is evident by the fast increasing use of private digital currencies.
- Popularizing the new age electronic form of currency in the country as more and more people move away from cash / paper currency.
- Making currency issuance easy, efficient, robust and secure. In the process, it is expected that the cost of currency issuance will also come down.
In 2021, RBI Deputy Governor, T R Sankar had said that central banks in most of the countries have realized that digital is the way forward. However, RBI has taken a lead and is amongst the few major central banks which have reached the pilot stage. A smooth implementation will ensure a new age of digital transformation in the way banking has traditionally been conducted. The retail payment ecosystem will also get a much needed digital boost, benefitting the customer as well as the merchant.
Currently, it’s in the testing phase and only select users can use it in this controlled environment. Once completed successfully, it will be rolled out for the general public.
Transactions can be carried out through a digital wallet and can be stored on mobiles or other devices.
The denominations of digital rupee will be similar to coins and currency notes which are currently in use.
The digital currency stored in wallets will not earn any interest.
Yes, the digital currency is freely convertible. It can be easily converted to cash, money or deposits with banks.
There is no charge for converting currency to CBDC or digital currency.