RBI to launch pilot project on digital currency from tomorrow, identifies 9 banks

The Reserve Bank of India (RBI) will commence pilot launches of the digital rupee from Tuesday, November 1. It has identified nine banks for participation in the pilot launch. They are the State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC.

The use case for this pilot is the settlement of secondary market transactions in government securities. The use of the digital rupee is expected to make the interbank market more efficient.

Settlement in central bank money would reduce transaction costs by preempting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk, the central bank said. 

Going forward, other wholesale transactions and cross-border payments will be the focus of future pilots, based on the learnings from this pilot, the central bank said.  

The first pilot in the digital rupee-retail segment is planned for launch within a month in select locations in closed user groups comprising customers and merchants. 

"The details regarding operationalisation of e₹-R pilot shall be communicated in due course," the RBI said.

On October 7, the RBI had released a concept note on Central Bank Digital Currency (CBDC) for India. The CBDC is a digital form of currency notes issued by a central bank. 

While most central banks across the globe are exploring the issuance of CBDC, the key motivations for its issuance are specific to each country’s unique requirements.

The central bank said the digital rupee will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper. It also has all the transactional benefits of other forms of digital money, the RBI said.

The central bank said its digital currency is aimed to complement, rather than replace, current forms of money and is envisaged to provide an additional payment avenue to users, not to replace the existing payment systems.

Supported by state-of-the-art payment systems that are affordable, accessible, convenient, efficient, safe, and secure, the digital rupee will further bolster India’s digital economy, make the monetary and payment systems more efficient and contribute to furthering financial inclusion, the RBI said. 

The Centre had announced the launch of the digital rupee from FY 2022-23 onwards in the Union Budget on February 1, 2022. In the budget announcement, it was stated that the introduction of the currency will give a big boost to the digital economy.

"The broad objectives to be achieved by the introduction of CBDC using blockchain and other technologies as a ‘more efficient and cheaper currency management system’ were also laid down in the budget," the central bank said in its concept note.