The Reserve Bank of India (RBI) had announced that it will commence a pilot project of digital rupee (eRs) for specific use cases in the wholesale segment from November 1. The pilot project is for settlement of secondary market transactions in government securities. Use of eRs-W is expected to make the inter-bank market more efficient. 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. Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots; based on the learnings from this pilot project.
The RBI will launch the central bank digital currency (CBDC) during the current financial year.
The RBI had further announced that within a month of this pilot project; a similar project for the retail segment would also be launched in closed user groups comprising customers and merchants. Details regarding this would be made public soon. All these preparations are in line with the announcement by Finance Minister Nirmala Sitharaman in her budget speech. The RBI will launch the central bank digital currency (CBDC) during the current financial year. Let us therefore try and understand what exactly the CBDC or the digital rupee is. The RBI defines the CBDC as the legal tender issued by a central bank in a digital form. It is the same as a sovereign currency and is exchangeable one-to-one at par with the fiat currency.