The State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank are the first four banks to participate in the Reserve Bank of India’s testing of its retail central bank digital currency (CBDC), the digital rupee (e₹-R), in Mumbai, New Delhi, Bengaluru, and Bhubaneswar.
This pilot program will ultimately include participation from four other banks: Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank. It will also be introduced in more cities, including Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.
The introduction of a digital currency by the RBI this fiscal year is intended to advance the digital economy and facilitate effective currency management, as per Finance Minister Nirmala Sitharaman’s Budget 2022–23 Speech from earlier this year.
The RBI states that CBDC is the legal tender issued in digital form by a central bank. It has the exact same value as fiat money and may be exchanged for it in exact amounts. CBDC can be traded via Blockchain-backed wallets, which make payments final and reduce settlement risk.
Digital currency can be exchanged for money equivalent to paper notes since the CBDC is freely convertible against real money. To use e-rupees, unlike UPI, a consumer does not require a bank account.
In contrast to cryptocurrencies, the Digital Rupee will also have another key benefit of being centralized i.e., it will be administered by a single entity, hence lowering the risk of volatility that is associated with the likes of Bitcoin, Ethereum, etc. It can also aid in preventing fraud. With inherent programmability and controlled traceability, CBDC could proactively combat fraud, whereas the existing system relies on post-facto inspections to do so.
Read More: Does India need the RBI-issued e-rupee?
A report describing the Reserve Bank of India’s ambitions for the digital rupee, or “e-rupee,” was published earlier in October. It also outlined the reasons for the implementation of a CBDC and how it would be tested in distinct phases.
As per the official announcement by the central bank on Tuesday, the digital rupee will be distributed through intermediaries like banks and will be produced in the same denominations as present paper money and coins.
Users will be able to process transactions with e₹-R using a digital wallet provided by the collaborating banks and stored on mobile devices, the central bank explained, adding that both person-to-person (P2P) or person-to-merchant (P2M) will be possible. By scanning the QR code placed on the spot, a customer can make a purchase from the vendor. The digital currency can be changed into other kinds of payment, such as bank deposits, as needed but will not accrue any interest.
The Reserve Bank of India stated that the pilot would evaluate the stability of the complete creation, distribution, and retail use of digital rupees in real-time. Based on the insights learned from this pilot, it would eventually test more e-rupee features and applications.
To get started, download the CBDC app and provide a phone number associated with a bank account. A digital wallet with a specific ID will be provided to you after you successfully register on the app. After that, you may add money to the wallet by transferring funds from your bank account. Next, the app allows you to select currencies in whatever denomination you like. In order to load 20,000, you may, for example, ask for 500×20 units, 100×50 units, and 50×100 units. And after you confirm, you’ll find digital cash in these denominations in your wallet.
Several nations are exploring centralized digital currencies. While some are carrying out research, others have launched trial programs or formally implemented digital money.
In 2020, the Bahamas introduced the Sand Dollar, one of the first digital currencies issued by a central bank. In order to test integrating their domestic CBDCs, the central banks of Sweden, Norway, and Israel have started a project with the Bank for International Settlements. In October this year, the Central Bank of Nigeria celebrated the first anniversary of the launch of Africa’s first digital currency, the e-Naira.
This month in the United States, a coalition of banking institutions led by the Federal Reserve Bank of New York, HBSC, Mastercard, and Wells Fargo announced the launch of the Regulated Liability Network, a proof-of-concept digital money network. Through the Venus Initiative, France and Luxembourg settled a bond for 100 million euros (US$104 million) using an experimental CBDC. The National Bank of Ukraine unveiled plans on Monday on the possibility of creating an electronic hryvnia that could be used for a variety of purposes, including the issue and exchange of virtual assets.