On Monday, the Reserve Bank of India (RBI) announced that starting from today, it will start pilot launches of the digital rupee (e-rupee) for particular use cases. According to an RBI statement, the central bank will conduct a pilot in digital rupee for the wholesale industry on today.
The RBI will shortly start trial launches of the digital rupee (e-rupee) for specific use cases, according to a press release from the central bank on October 7. According to the official release, this pilot's use case was to settle secondary financial activity involving government securities.
It added that settlement in central bank money would lower transaction costs by negating the need for infrastructure for settlement guarantee or for collateral to mitigate settlement risk. It stated that the use of digital rupee - wholesale segment (e-rupee-W) is expected to increase the efficiency of the inter-bank market.
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It also stated that settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk.
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Banks that have been selected for participation in pilot
Nine banks have reportedly been chosen to participate in the pilot, including 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.
It further stated that the first trial for the retail sector's digital rupee (e-rupee-R) is scheduled to go live in less than a month in a few key areas with select limited user groups made up of customers and merchants. In due course, information regarding the e-rupee-R pilot's operationalization will be released.
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What is CBDC? (Central bank digital currency)
Central Bank Digital Currency (CBDC) is a digital form of legal money issued by a central bank, according to the Reserve Bank of India. Simply described, it is an electronic version of the Indian Rupee, a sort of fiat money. It can therefore be traded one for one for fiat money.
As per RBI, “CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.”
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What are the advantages of digital rupee?
The benefits of cryptocurrency and other digital payment methods will be present in CBDC. A digital currency can't be physically destroyed, burned, or torn, to start with. Additionally, they are not truly lost. Thus, a digital form of cash will have an infinite lifeline as opposed to notes.
Another key benefit of the Digital Rupee over other cryptocurrencies is that it will be regulated by a single entity, lowering the volatility risk associated with other virtual currencies like Bitcoin.
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(With inputs from ANI)
