(4 November 2022 – India) The Reserve Bank of India (RBI) is launching the first pilot project for its own central bank digital currency (CBDC), also known as the digital rupee or e-rupee.
The nine banks slated for inclusion in the wholesale segment pilot include 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 pilot project will focus on settlement of secondary market transactions for government securities.
India’s CBDC will be called ‘e₹’ and can be exchanged one-for-one for fiat currency as it is a digital form of rupee. The RBI has proposed to issue two versions of Digital Rupee, general purpose or retail (CBDC-R) and wholesale (CBDC-W). The RBI confirmed a pilot project for the retail e-rupee will commence within a month in select locations in closed user groups.
“CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different” the RBI said in a statement.
“Use of e₹-W is expected to make the inter-bank market more efficient. 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” the central bank added.
“The adoption and growth of CBDC is in the choices that the RBI makes based on the research and pilot programs. There will be significant investments in adapting or building infrastructure for CBDC, and the concept note is not keen to introduce incentives, so we can expect a few more policy dilemmas down the road. The good thing is India is not alone in this journey, nor is it lagging behind other countries- a careful, cautious and coordinated roadmap is the best way forward” commented Saraf & Partners Senior Associate, Gangesh Varma.