The first retail digital rupee trial, according to the Reserve Bank of India (RBI), will start on December 1, 2022.
The pilot program, according to RBI, “will evaluate the stability of the entire process of creating, distributing, and using digital rupees at retail in real-time.”
This is how the pilot operates: The e-rupee (e-R) is distributed by participating banks into mobile phone-based digital wallets in the same denominations as notes and coins. These deposits can then be utilized for individual transactions or to buy goods and services from businesses. In addition, QR codes can be used to make payments to merchants.
The e-R can be changed into other types of currency but will not accrue any interest. According to the RBI, digital currency will provide the same benefits as actual cash, including trust, safety, and settlement finality.
The trial will comprise “closed user groups comprising customers and merchants,” according to information provided by RBI in late October, but operation-specific details will be made public “due course.”
Four banks (State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank) in four cities will participate in the pilot’s initial phase (Mumbai, New Delhi, Bengaluru, and Bhubaneswar.) Later, it will extend to nine additional cities and four additional institutions (Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank) (Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla).
According to RBI, “the pilot’s scope may be gradually expanded to cover more banks, users, and locations as needed.” The central bank added that the outcomes of this pilot program would guide the features and programmes explored in subsequent pilots.
India has a sizable population but a weak tax system. So to reduce the untaxed cash economy, the country removed its largest banknotes, with face values of $500 and $1,000 ($6 and $12), out of circulation in 2016. Now that currency is being converted to digital form in India, banks and regulators can see more transactions.
The wholesale version (e-W) trial, which started on November 1 and involved nine banks, including the eight participating in the retail digital rupee pilot and HSBC, came before the retail digital rupee pilot.
According to RBI, the “settlement of secondary market transactions in government securities” is the wholesale digital rupee pilot’s stated use case.
The interbank market is anticipated to function more effectively using e-W. In addition, by avoiding the requirement for infrastructure to provide settlement guarantees or for collateral to decrease settlement risk, settlement in central bank money would lower transaction costs, according to the central bank.
Since at least July 2021, and maybe for much longer, RBI has stated that it intends to introduce a digital currency.
Indians are more accepting of Central Bank Digital Currencies (CBDCs) than cryptocurrencies. However, Nirmala Sitharaman, the nation’s finance minister, said in a parliamentary speech in July that cryptocurrency ought to be outlawed.
Sitharaman claims that because the government or the central bank does not issue cryptocurrencies, RBI does not consider them actual currencies.