Less than a month after testing the digital rupee in the wholesale segment, the Reserve Bank of India (RBI) on Tuesday announced it would launch the first retail digital rupee (e₹-R) pilot on December 1. This significant announcement will allow people to use India’s first central bank digital currency (CBDC) for retail purchases.
What is a retail digital rupee?
It is India’s first central bank digital currency (CBDC), or a digital or virtual currency that can be used for retail purchases. Like paper money, it is also issued by the Reserve Bank of India. “The e₹-R would take the form of a digital token representing legal tender,” RBI said on Tuesday.
In her 2022-23 budget speech earlier this year, Finance Minister Nirmala Sitharaman said RBI will launch a digital currency in the current fiscal year to boost the digital economy and enable efficient currency management.
How can you use it?
RBI said Tuesday users will be able to trade the digital rupee, or e₹-R, through a digital wallet offered by participating banks and stored on mobile phones/devices. Transactions can be both person-to-person (P2P) and person-to-merchant (P2M).
The digital retail rupee would be distributed through intermediaries i.e. banks.
Which banks will distribute the digital rupee and its denominations?
According to the RBI statement, eight banks have been identified for phased participation in this pilot project. The first phase will start with four banks – State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank – in four cities across the country. Four other banks – Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank – will subsequently join this pilot.
“It would be issued in the same denominations that paper money and coins are currently issued,” the RBI said.
Will it be rolled out across India on December 1st?
no RBI said the pilot will initially cover four cities – Mumbai, New Delhi, Bengaluru and Bhubaneswar – and later expand to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. The scope of the pilot can be incrementally expanded as needed to include additional banks, users and locations.
“The pilot would cover select locations in closed user groups (CUG) comprising participating customers and dealers,” RBI said.
Is digital rupee the same as cryptocurrency?
The digital rupee is a CBDC or digital or virtual currency. It differs from private virtual currencies or cryptocurrencies, including Bitcoin, Ethereum, etc., which have mushroomed over the last decade. Private virtual currencies do not represent any debt or liability of any person as there is no issuer.
What experts say
Jyoti Prakash Gadia, Managing Director of Resurgent India, said: “This demonstrates RBI’s consistent efforts to bring to market an efficient, user-friendly digital currency mechanism well ahead of other central banks around the world.”
Gadia added that the model chosen for the retail rupee differs from that previously announced for the wholesale rupee, which is used by banks for government securities transactions. “The token-based mechanism as announced by RBI for retail is better suited to the ordinary retail customer for both individual customer transactions with selected merchants and an individual with another individual initially used within the selected closed group target.”
Jaya Vaidhyanathan, CEO of BCT Digital, said: “The Reserve Bank of India’s (RBI) central bank digital currency (CBDC) aims to deliver on the promise of affordable, safer and easier payments for all. By offering a regulated alternative to cryptocurrencies on the market, CBDC would lead to more robust and reliable payments and reduce reliance on cash.”
Vaidhyanathan added that the underlying technology would keep transaction costs low. As it is interoperable with other payment systems, it will complement existing techniques such as UPI, thus completing the mobile payments ecosystem.
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