Launch Of Digital Rupee In India: RBI Finalizes These 9 Banks For Transacting In Digital Rupee! How Will It Work?

The Reserve Bank of India (RBI) identified nine banks to participate in the first pilot of digital rupee in the wholesale segment on October 31.

Launch Of Digital Rupees In India

The list of these nine banks includes  State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC, the RBI said in a release.

Reportedly, the pilot will be commencing on November 1.

The use case for the wholesale pilot is settlement of secondary market transactions in government securities, as per the release issued on October 31.

According to the RBI, the use of e?-W, or wholesale, is expected to make the inter-bank market more efficient, the.

Basically, this settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk, RBI said. 

Based on the learnings from this pilot, other wholesale transactions, and cross-border payments will be the focus of future pilots moving forward, based on the learnings from this pilot, the central bank said.

Further adding that the first pilot in Digital Rupee – Retail segment (e?-R) is planned for launch within a month in select locations in closed user groups comprising customers and merchants.

Also, the details regarding operationalisation of such a pilot shall be communicated in due course.

What Is CBDC?

Here mentioned, Central bank digital currency, or CBDC, is a currency that is backed by the regulator and stored in a digital format.

This currency can further be converted into paper currency and will reflect on the RBI’s balance sheet, thereby granting it legal tender status. 

Moving ahead, India’s CBDC will be called ‘e?’.

Prior to this, Union Finance Minister Nirmala Sitharaman

said on February 1 that the RBI will launch a CBDC in 2022-23 marking the first official statement from the Union government on the launch of the much-awaited digital currency. 

How Does This Help?

The introduction of CBDC will boost the digital economy and it will be based on blockchain technology, according to the Finance Minister.

It is noteworthy here that CBDC is not a crypto currency. 

Notably, the digital form of legal tender and private virtual currencies are entirely different. 

Basically, the private virtual currencies are at substantial odds with the historical concept of money.

In reality, a CBDC is the digital form of fiat currency and will ease transactions. 

CBDC will provide a safe, robust, and convenient alternative to physical cash, as per an RBI report.

Further adding that depending on various design choices, it can also assume the complex form of a financial instrument.

The RBI said it will soon start pilot launches of digital rupee for specific use cases, in a concept note dated October 7.

This concept note was released with an aim to provide a high-level view of motivations for the introduction of CBDC in India.