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RBI To Launch Its First Pilot For Retail CBDC From Dec 1

Transactions can be both Person to Person (P2P) and Person to Merchant (P2M) through retail digital rupee

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The Reserve Bank of India (RBI) on Tuesday announced the launch of the first pilot for retail digital rupee (e₹-R) on December 1.

In a circular, RBI said that the pilot would cover select locations in closed user group (CUG) comprising participating customers and merchants. The e₹-R would be in the form of a digital token that represents legal tender. It would be issued in the same denominations that paper currency and coins are currently issued. It would be distributed through intermediaries, i.e., banks. 

As per the pilot, users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones/devices. Transactions can be both Person to Person (P2P) and Person to Merchant (P2M).

Payments to merchants can be made using QR codes displayed at merchant locations. The e₹-R would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks.

Along with it, the pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. Different features and applications of the e₹-R token and architecture will be tested in future pilots, based on the learnings from this pilot, the circular said.

Eight banks have been identified for phase-wise participation in this pilot. The first phase will begin with four banks, viz., State Bank of India (SBI), ICICI Bank, Yes Bank and IDFC First Bank in four cities across the country. Four more banks, viz., Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank will join this pilot subsequently.

The pilot would initially cover four cities, viz., Mumbai, New Delhi, Bengaluru and Bhubaneswar and later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. The scope of pilot may be expanded gradually to include more banks, users and locations as needed.

Jaya Vaidhyanathan, CEO, BCT Digital said, "India’s CBDC imperative, in line with its recent digitalisation efforts, is a remarkable feat, considering that India is one of the few countries (among both developed and developing nations) that have attempted this. While the central bank had earlier commenced a pilot for CBDC in the wholesale market for secondary trade in government securities, the retail segment project is now ready for take-off as well. Banks are now tying up with last-mile fintech service providers on facilitating the initial set of transactions between customers and merchants."

"The CBDC’s interoperability with other payment systems will certainly contribute to enhanced adoption, co-existence, and innovation, and ultimately result in efficiency and convenience for end-users. The CBDC has some inherent benefits, being a sovereign currency. The primary advantage is that it ensures settlement finality and reduces settlement risks in the financial system," she said.