Digital Rupee! Reserve Bank Of India To Launch First Pilot Project Today With 9 Banks

India¡¯s central bank, the RBI, is set to make a big move towards the adoption of digital rupee today. The Reserve Bank of India is set to roll out its first pilot of the Central Bank Digital Currency (CBDC) with the launch of Digital Rupee (Wholesale segment) today, i.e. on November 1st 2022.

Digital Rupee - Wholesale segment, denoted by the sign e?-W, will be used for settlement of secondary market transactions in government securities, the RBI said in a statement yesterday.

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Also Read: Digital Rupee Can Kill The Case For Cryptos Like Bitcoin, Says RBI Deputy Governor

Reason Behind The Pilot Project?

In a statement, the RBI said the use of e?-W is expected to make the inter-bank market more efficient. It also said that settlement in central bank money would reduce transaction costs by preempting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk, as per TOI report.

Based on the learnings from this pilot, other wholesale transactions and cross-border payments will be the focus of future pilots.

Which Banks Will Participate?

Nine banks, including State Bank of India (SBI), Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC, have been identified for participation in the pilot, the report mentioned.

Will Digital Rupee Replace Physical Currency Like Banknotes?

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The RBI had reportedly clarified earlier that digital currency will not replace physical banknotes.

"It 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," RBI had said.

Does This Impact The Common Man?

The wholesale version of digital currency does not directly impact the common man. Wholesale Digital Rupee or Central Bank Digital Currency (CBDC) is designed for restricted access to select financial institutions.

However, the retail version of the same is being planned for launch within a month in select locations. Retail CBDC can be used by all including the private sector, non-financial consumers, and businesses.

The Idea Behind Digital Rupee

Earlier this year, in the Union Budget for 2022-23, India¡¯s Finance Minister Nirmala Sitharaman had said the RBI would roll out a digital equivalent to the rupee in the current financial year.

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Also Read: Around 100 Countries Already Exploring Digital Currency, Says IMF MD Amid India's Digital Currency Push

Faced by a dwindling usage of paper currency, the central banks are now seeking to popularise a more acceptable electronic form of currency, as per TOI report.

So, CBDC is expected to lower the cost of issuance of money and transactions. In its concept note released earlier, the RBI said that the digital currency will be supported by the state-of-art payment systems of India that are affordable, accessible, convenient, safe and secure.

It stated that the e-rupee will bolster India's digital economy, enhance financial inclusion and make the monetary and payment systems more efficient.

"The e-rupee will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper. It also has all the transactional benefits of other forms of digital money," the RBI said.

What is CBDC?

CBDC (Central Bank Digital Currency) is the legal tender that is issued by the central bank in a digital form. In simpler words, it will be just like a flat currency but in a different form.

In this case, the Digital Rupee will be backed by blockchain technology. The currency will be exchanged through blockchain-based wallets. It will also be exchangeable with government-issued money. CBDC offers an alternative to western payment systems.

Also Read: RBI Allows International Trade Settlements In Rupee

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