In Depth: RBI's Digital Rupee

The Reserve Bank of India (RBI) has launched first pilot for digital Rupee or Central Bank Digital Currency (CBDC). The idea was first presented in the Union Budget of 2022. It will be run in a pilot mode with four banks, namely State Bank of India  ICICI Bank, IDFC First Bank, and Yes Bank in New Delhi, Mumbai, Bengaluru, and Bhubaneswar. Initially the group will cover only a close user group or CUG, which will include customers and merchants. The launch this time will be in retail sector, while wholesale sector saw the rollout on November 1 2022.

But what is digital Rupee?

For starters, it is not a form of a cryptocuttency. It is a digital token issues in the same denomination as hard cash. This form of currency will be distributed via intermediaries like banks to customers and merchants. The bank will be able to transact the Rupee via a digital wallet and stored on mobile phone devices. The transaction can happen person to person, and person to merchant primarily via QR codes. There will be features like trust, safety, and settlement finality. It is very similar to online transactions. Given that it is launched at a pilot stage, it will be easy to test the robustness of the entire process. The roll out will happen in a phased manner.  

Going forward four more banks will join the list, which include Union Bank of India, Bank of Baroda, HDFC Bank, and Kotak Mahindra Bank. The facility will be extended across many more Indian cities, like Ahmedabad, Hyderabad, Guwahati, Indore, etc. The time line for the official roll out has not been revealed yet. Going by the trends, it will only be gradual.

This move will further accelerate the usage of UPI while aiding the government's Digital India mission and promoting financial inclusivity.