The Reserve Bank of India (RBI) announced on Monday that it will begin a pilot launch for the first Central Bank Digital Currency - Digital Rupee from November 1, 2022. The first Digital Ruppe pilot will be in the Wholesale segment said the RBI
According to the RBI press release, "The use for this pilot is the settlement of secondary market transactions in government securities." RBI also added that the use in the wholesale segment would make the inter-bank market more efficient.
The central bank also said that nine banks, including State Bank of India, Bank of Baroda, Union Bank of India, ICICI Bank, HDFC Bank, Yes Bank, Kotak Mahindra Bank, IDFC First Bank and HSBC will participate in the pilot.
The settlement in central bank money would also reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk.
RBI has also said that the first pilot in the Digital Rupee Retail segment is planned for launch in a month in closed user groups comprising customers and merchants.
In October, RBI had said it will soon pilot launch e-rupee for specific use cases and it also released a concept note on the Central Bank Digital Currency (CBDC).
What is the Central Bank Digital Currency or Digital Rupee?
CBDC is going to be a medium of payment and a legal tender for all citizens, governments, businesses and others issued by the central bank. This digital currency can be converted into bank money or cash. To put it simply, digital currency is just a digital form of the Indian Rupee. Which means that you can get one digital rupee for one fiat or physical currency.
CBDC only has a digital form just like the money you have on your digital wallets. The digital rupee will have all the advantages of cryptocurrencies and digital payments. For example, a digital currency will be a safe store as it cannot be physically harmed or damaged. As they are digital you also won't lose them like you normally lose out notes or coins.
But the major advantage of the Digital Rupee is that it will be governed by the central authority. This reduces the risks that are associated with digital currencies like Bitcoin.
RBI has always expressed concerns regarding private cryptocurrencies like Bitcoin and Ether being used for terror funding, money laundering and tax evasion. By introducing their own digital currency RBI plans to bridge the benefits and risks of digital currency.
