RBI TO LAUNCH...

In the first phase, four banks will act as intermediaries for the pilot: State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank.

The remaining four—bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank—will subsequently join the trial, it said.

The launch will initially cover Mumbai, New Delhi, Bengaluru and Bhubaneswar and the trials will be later extended to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla.

“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,” the statement said.

Users can transact with e₹-r through a digital wallet offered by participating banks and stored on mobile phones. According to RBI, digital rupee transactions can be both person-to-person and person-tomerchant.

It said that payments to merchants could be made using quick response (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,” RBI said.

According to V Vaidyanathan, chief executive, IDFC First Bank, the central bank digital currency would give greater anonymity than existing digital transactions and this is one of the major benefits for users.

“In due course, it could even get better. India is a growing economy and while it already has several digital payment channels, this would add to the options available before users. At present, it is being done on a pilot basis, but in future, it will be the next big thing in the payments space once it gathers some critical mass,” said Vaidyanathan.

The pilot will test the robustness of the process, which will include how the digital rupee is created, distribution, and retail use in realtime, RBI said, adding that different features and applications of the retail digital rupee token and architecture will be tested in future pilots, based on the learnings from this trial.

“The scope of the pilot may be expanded gradually to include more banks, users and locations,” it said.

Last July, RBI deputy governor T Rabi Sankar spoke at length about the relevance of CBDC in the Indian context, given that domestic payment systems are largely real-time and transaction costs are perhaps the lowest in the world.

A pilot survey conducted by RBI on retail payment habits of individuals in six cities between December 2018 and January 2019 showed that cash remained the preferred mode of payment for receiving money for regular expenses. For small value transactions— of up to ₹500—cash is used predominantly.

Sankar had said that the preference for cash represents a discomfort for digital modes of payment, and a CBDC is unlikely to replace such cash usage. But the preference for cash for its anonymity can be redirected to acceptance of CBDC, as long as anonymity is assured, he had said.