RBI to launch digital rupee pilot this week
Agencies letters@hindustantimes.com
MUMBAI: The Reserve Bank of India’s first pilot for a retail e-rupee, its version of the central bank digital currency (CBDC), will be launched on Dec. 1, it said in a statement on Tuesday.
The pilot will cover select locations in a closed user group comprising participating customers and merchants, the central bank said.
“It would be issued in the same denominations that paper currency and coins are currently issued,” the statement added. “It would be distributed through intermediaries such as banks.”
The RBI has been running a pilot of the wholesale e-rupee since Nov. 1, with nine banks transacting in government securities using the e-rupee.
Users will be able to transact with the e-rupee through a digital wallet offered by participating banks and stored on mobile phones or devices, it said.
The e-rupee would not earn any interest and can be converted to other forms of money, like bank deposits, as and when needed.
“The pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real-time,” the RBI said.
RBI will later test other features and applications of the e-rupee, based on the learnings from this pilot.
The pilot will be launched in two phases, with State Bank of India, ICICI Bank, Yes Bank and IDC First Bank participating in the first phase across four cities in the country.
Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank will also join the pilot at a later stage across more cities.
“The scope of the pilot may be expanded gradually to include more banks, users and locations as needed,” the RBI said.
RBI had announced the pilot in October and released a concept paper offering insights into the electronic currency’s objectives, benefits, risks, design choices, and technology.
“CBDC holds a lot of promises by way of ensuring transparency and low cost of operation among other benefits and the potential to expand the existing payment systems to address the needs of a wider category of users,” RBI had said in the paper.
The central bank had said in the paper that it was considering various technological options, including the suitability of the architecture (distributed ledger/centralised/hybrid; open source/proprietary), security of the token creation process and central bank node, standards to be followed, counterfeiting prevention technology, security, especially in offline transactions, and smart contract features and its use cases in both wholesale and retail segments.
“RBI is currently engaged in working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch, and simultaneously examining use cases that could be implemented with minimal or no disruption,” the central bank said.
RBI had been exploring the benefits of the introduction of a CBDC for some time. “As the extent and scope of such pilot launches expands, RBI will continue to communicate about the specific features and benefits of the e-rupee, from time to time,” it said.
Many governments are exploring whether CBDCs can offer benefits to payments and financial systems without the volatility associated with pri
vate cryptocurrencies. There has also been a raging discussion in the Indian government over the past year on banning private cryptocurrencies, and the RBI governor advised investors earlier this year that such assets were threat to macroeconomic and financial stability.
RBI’s concept paper had said that the final architecture of the e-rupee will be decided depending on the outcomes of the different use cases and multiple technological options to be tested.
The central bank had said that account-based CBDC would be like existing forms of money, which are credit balances on accounts. In contrast, token-based CBDCs are a new form of money where the central banks’ liability is incorporated into the token. RBI will build a prototype based on the recommendations of the working group set up in 2020. It will specify technical requirements to technology partners and test the idea in an operationally controlled environment to examine its functionality, including the design, deployment plan and success criteria.
The central bank added that since CBDC, across the world, is in conceptual, development, or pilot stages, extensive stakeholder consultation and iterative technology design must take place to develop a solution that meets the requirements.
“While the intent of CBDC and the expected benefits are well understood, it is important to identify innovative methods and compelling use cases that will make CBDC as attractive as cash, if not more,” it said.