On, November 1, the Reserve Bank of India (RBI) will begin the pilot programme for a central bank-backed digital rupee for the wholesale sector. In an announcement on the “Operationalisation of Central Bank Digital Currency-Wholesale (e-W) Pilot,” the RBI stated that “the first pilot in the Digital Rupee – Wholesale segment shall start on November 1, 2022.”
The first trial in the Digital Rupee – Retail category will debut in a month in a few key areas with closed user groups made up of consumers and retailers.
What is a Digital Rupee?
The e-Rupee is a kind of digital token that serves as legal tender money, according to the Reserve Bank of India. In contrast to cryptocurrencies, the digital Rupee is issued in the same denominations as coins and paper money, making it interchangeable 1:1 with the fiat currency.
The e-R, which will be made available on December 1st, is a digital token that stands in for money. It will be dispersed through middlemen, in this case, banks, and issued in the same denominations as coins and paper money.
Users will be able to conduct transactions using e-R using a digital wallet provided by the collaborating banks and kept on mobile phones and other devices, according to the central bank.
According to the announcement made by the RBI, P2P (Person to Person) and P2M (Person to Merchant) transactions in digital rupees are both permitted.
Like consumers do with Paytm or Google Pay, payments to merchants may be done using QR codes displayed at merchant locations. “The e-R would provide characteristics of actual money, such as trust, safety, and settlement finality. It will not earn interest, just like cash, and may be changed into other kinds of payment including bank deposits, according to the RBI.
In four cities, including Mumbai, New Delhi, Bengaluru, and Bhubaneswar, the pilot will begin in four banks, including the State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank.
How will the Digital Rupee impact each Sector?
Sector analysts claim that India’s CBDC programme is very much in line with its recent global efforts at digitalization. One of the few nations to have established its own CBDC is India. Many countries throughout the world, including China, Ghana, Jamaica, and certain European nations, are investigating their CBDC products. Even some people have started using their digital currency. Nine nations have completed the launch of their CBDCs. The Caribbean is home to eight of the nine nations. The Sand Dollar of the Bahamas, which debuted in 2019, was the first CBDC in the whole globe.
“The fifth-largest economy in the world will benefit from improved security, accountability, and traceability thanks to the digital rupee (e-R). The RBI will oversee the e-R rather than a distributed ledger, giving the virtual currency legal protection and stability. “These monies become untraceable once they are transferred out of the financial system, therefore the digital asset should lessen the enormous fraud perpetrated upon UPI users because it is backed by a sovereign institution and can be monitored,” stated Anirudh A. Damani, Founder of Artha Group.
The retail digital money will be distributed via a two-tier scheme and will go live on December 1. The chosen banks will first receive issuance from the central bank.
How does Digital Rupee Work?
The e-R would take the shape of a digital token that stands in for money. It will be disseminated through middlemen, i.e., banks, and printed in the same denominations as coins and paper money.
According to the RBI, users will be able to conduct transactions with e-R using a digital wallet provided by the participating banks and kept on mobile phones and other devices.
Both person-to-person (P2P) and person-to-merchant transactions are possible (P2M). QR codes that are displayed at the business location can be used to make payments to the merchant.
What is the advantage of using the Digital Rupee?
The RBI had previously stated that among other things, the reduction of operational costs associated with physical cash management, promoting financial inclusion, and bringing resilience, efficiency, and innovation to the payments system are the main reasons for considering the issuance of CBDC in India.
It will improve the settlement system’s efficiency, spur innovation in the area of cross-border payments, and give the general public access to applications that any private virtual currency may offer, without the dangers involved.
The RBI has regularly raised concerns about the use of private cryptocurrencies like Bitcoin, Ether, etc. for money laundering, terrorism funding, tax evasion, etc. Its own CBDC launch has been viewed as a method to balance the benefits and dangers of digital money. With Jio 5G network speed, one can do seamless transactions across the globe.
What are the Eligible Banks and cities for Digital Rupee?
The introduction of the digital rupee will take place in phases, according to the central bank. The pilot would initially commence with four banks in only four locations for the first phase: State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank. Mumbai, New Delhi, Bengaluru, and Bhubaneswar are among these cities. The pilot will now include four additional institutions, including Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank, according to the RBI.
Digital Rupee VS UPI
It is easy. UPI, in contrast to the digital rupee, just serves as an interface for financial transactions involving actual money. While one cannot withdraw Digital Rupee from their bank account, it is only another type of money similar to fiat money. The UPI interface, however, enables consumers to conduct online transactions using their bank account. Money printing is essentially used for all transactions.
UPI and the digital Rupee are thus entirely separate ideas. With the introduction of the digital rupee, India may be hoping to eventually abandon UPI. The concept is likely to reduce the expense of keeping and delivering cash money by depending on the digital rupee.
Is Digital Rupee Safe for Transactions?
Users shouldn’t question the digital rupee’s legitimacy or contrast it with other digital currencies (cryptocurrency). It will have the same degree of confidence as actual cash since it will be issued by the central bank (RBI).
Yes, there can be some difficulties while utilising digital currency at first. The central bank, however, has stated that it would use the pilot to learn and that, based on what it learns, it will provide customers with a range of services and apps in the future.