RBI's Digital Rupee pilot launch today: Here are 10 things to know

India has set a deadline of 2023 to launch its digital currency, or more commonly known as Central Bank Digital Currency, or CBDC, and things look on course with the Reserve Bank of India (RBI) commencing its pilot launches today. As we move into a new era of digital money here are ten things you should know about the Digital Rupee.

1. A Central Bank Digital Currency or CBDC will be legal tender like paper currency with all the characteristics of the existing fiat currency. It is the digital form of the fiat currency, but unlike crypto it is issued and regulated by the central bank.

2. The purpose is to create a more efficient and cheaper currency management system. It will be used alongside existing forms of money enabling financial inclusion and implementation of monetary and fiscal policies. 

3. There are many countries that have already commenced their pilots such as China and Hong Kong while many still developing their digital currency.

4. In India, based on the usage, digital rupee will be demarcated into two broad types - general purpose (retail) and wholesale. Retail rupee will potentially be available for consumers and businesses, while wholesale rupee is designed for restricted access by financial institutions.

5. On November 1, India’s first pilot in the Digital Rupee will be commenced in the wholesale segment (e₹-W), where the use case is the settlement of secondary market transactions in government securities. Settlement in central bank money would reduce transaction costs as being a sovereign currency it ensures settlement finality and thus reduces settlement risk in the financial system.

6. The first pilot in the retail segment (e₹-R) is planned for launch within a month in select locations in closed user groups. Retail CBDC by definition means that every individual will have a wallet with the RBI. This means it will be possible to know how and where people are using the currency. 

7. Nine banks -- 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-have been identified for participation in the pilot.

8. Through digital currency the central bank aims to provide the public with a risk-free virtual currency that will provide them legitimate benefits without the risks of dealing in cryptos.

9. In the future digital rupee could also potentially enable a more real-time, cost-effective seamless integration of cross-border payment systems. 

10. The total expenditure incurred on security printing during April 1, 2021, to March 31, 2022 was Rs 4,984.80 crore This cost of printing money is predominantly borne by four stakeholders –the general public, businesses, banks, and the Central Bank. CBDC will reduce the operational costs e.g. costs related to printing, storage, transportation and replacement of banknotes, etc.

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

Also read: What is a Digital Rupee? RBI to pilot launch on November 1