RBI Launches Digital Rupee: Everything you Need to Know


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RBI Digital Rupee

The Reserve Bank of India (RBI) has launched the retail digital rupee or Central Bank Digital Currency (CBDC) today, on December 1. The currency is in the form of a digital token. The currency is in the form of a token and is in the same denominations as of the other currency (rupees). The retail digital rupee, also known as e₹-R, can be used for all day-to-day transactions, both person-to-person (P2P) and person-to-merchant transactions possible (P2M). QR codes shown at merchant locations can be used to make payments to retailers as well.

What is CBDC?

According to RBI, CBDC is a legal tender issued by the Central bank in a digital form, it’s like existing paper currency but in the digital format and this is totally exchangeable with any existing currency. In simple words both, Rs 500 in the form of notes are the same as Rs 500 in the form of CBDC.

All of its features and the principles for its foundation of CBDC are designed by the Bank for International Settlements and are considered by all the central banks globally, including RBI.

What is RBI’s Pilot project?

As announced by the RBI on November 29, the pilot implementation is being done in many phases. In the first phase they have partnered with a few banks and only in a few cities for now. The first phase has started with only four banks including, the State Bank of India, ICICI Bank, IDFC First Bank, and Yes Bank and the cities the pilot has been introduced are Mumbai, Delhi, Bhubaneswar, and Bengaluru. With the second phase coming into play RBI will add 4 more banks to the list- HDFC Bank, Union Bank of India, Kotak Mahindra Bank, and Bank of Baroda. Together, they will expand the pilot to nine additional cities: Shimla, Guwahati, Hyderabad, Kochi, Lucknow, Gangtok, Ahmedabad, and Indore.

A closed user group made up of participating consumers and business owners will be created by the central bank and its partner banks. Tokens in the same value as existing paper money and coins will be used by the banks to distribute the digital rupee to the user group. The central bank has also stated that the retail digital rupee offer will have characteristics like “trust, safety, and settlement finality” that are present in physical money. The digital rupee can be exchanged for other currencies, such as bank deposits, but it will not accrue any interest.

Why is CBDC is introduced?

Finance Minister Nirmala Sitharaman had suggested the creation of a CBDC in the budget address for FY23. A CBDC, according to her, “would give the digital economy a tremendous boost” and “will lead to a more effective and less expensive currency management system.” So, in 2022–2023, the RBI will issue a CBDC “using blockchain and other technologies.”
Sitharaman made this suggestion while considering the global context in which other central banks are attempting to issue CBDCs. The Bahamas and Nigeria’s central banks have already implemented a CBDC. The Chinese central bank has carried out pilot operations like what the RBI is undertaking now and is in the advanced stages of issuing a retail CBDC.

What are the rules for using CBDC?

The guidelines are not laid properly and are in the initial stages, but certain things are very certain.

  • The CBDC will store in a digital wallet that may be connected to a person’s Aadhaar number.
  • The CBDC will be equal in value to an ordinary rupee.
  • Like ordinary cash, the digital rupee can be used to purchase goods and services.
  • Cell phones can be used to transfer the digital rupee from one person to another.
  • Any tax or bills can be paid using digital currency.

How is CBDC different from UPI?

The main distinction between UPI and CBDC is that users of CBDC must create separate accounts for it and connect them to the RBI’s system. The transactions will not occur on the bank’s server like NEFT, IMPS, UPI, wallet, or National Electronic Funds Transfer (NEFT) transactions. The transactions will instead be carried out and recorded on the blockchain of the RBI.

Can CBDC replace the popular digital wallets?

The digital rupee will be a digital form of legal tender in contrast to the actual currency-backed digital payments made possible by Google Pay and Paytm. In the future, it is possible that mobile payment providers would create a section of their apps specifically for the digital rupee.

There is uncertainty over how the introduction of a digital rupee by the Indian government may affect the profitability of well-known digital wallets. Although the digital rupee is still in its infancy, it is anticipated to have a significant impact on how businesses function in India.

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Ayan Mondal