India’s CBDC Launch 2022: Reserve Bank of India (RBI) has announced the launch of India’s much-awaited Central Bank Digital Currency (CBDC) for retail users from Thursday, December 1, 2022. CBDC will have all features and comforts that the cash Rupee has. The pilot would go through a closed user group between customers and merchants. The e₹-R (Digital Rupee) is a legal tender. It would be in the form of a digital token. It would be in the same denominations that paper currency and coins are currently issued. The distribution of e₹-R would be through banks. Users can transact with e₹-R through a digital wallet. The digital wallet will be offered by the participating banks and stored on mobile phones/devices. The transactions will be both Person to Person (P2P) and Person to Merchant (P2M).

India’s First Pilot for Retail Digital Rupee (e₹-R): Highlights

• India launches much-awaited Central Bank Digital Currency (CBDC)
• Some call CBDC a sort of official cryptocurrency
• CBDC is available for retail users from Thursday (December 1)
• The first pilot is launched in two phases with eight banks and thirteen cities
• The pilot’s scope will be extended depending on the success
• The transactions will be Person to Person (P2P) and Person to Merchant (P2M)

RBI launches the First Pilot for Retail Digital Rupee (e₹-R)

India’s CBDC Launch 2022: 26 November 2022, Yogesh Dayal, Chief General Manager, Reserve Bank of India (RBI) through a Press Release announced an Operationalization of the Central Bank Digital Currency – Retail (e₹-R) Pilot. RBI launched its first pilot for retail digital Rupee (e₹-R) on December 01, 2022. The readers may recall that RBI through its Press Release on October 31, 2022, indicated that the pilot in e₹-R would commence in a month’s time.

Nirmala Sitharaman had Earlier Announced CBDC’s Launch in 2022-23

India’s CBDC Launch 2022: Union finance minister (FM) Nirmala Sitharaman had earlier announced the launch of Central Bank Digital Currency (CBDC) in 2022-23. Accordingly, RBI has launched a pilot project for the much-anticipated digital currency. FM has claimed that the introduction of CBDC will boost the digital economy. Sitharaman informed citizens that CBDC will be based on blockchain technology.

Transact with e₹-R Through A Digital Wallet P2P and P2M

India’s CBDC Launch 2022: The pilot would go through a closed user group (CUG) comprising participating customers and merchants. The e₹-R is a legal tender. It would be in the form of a digital token. It would be in the same denominations that paper currency and coins are currently issued. The distribution of e₹-R would be through banks. Users can transact with e₹-R through a digital wallet. The digital wallet will be offered by the participating banks and stored on mobile phones/devices. 

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The transactions can be both Person to Person (P2P) and Person to Merchant (P2M). Payments to merchants will be made using QR codes. The QR codes will be displayed at merchant locations. The e₹-R users will feel comfortable the same as physical cash. The e₹-R will have all features like trust, safety, and settlement finality. Similar to cash, the e₹-R will not earn any interest and can be converted to other forms of money, like deposits with banks.

The Pilot will Test e₹-R’s Entire Process  

India’s CBDC Launch 2022: Since the Central Bank Digital Currency (CBDC) is launched for the first time, the pilot will test the robustness of the entire process of digital Rupee creation, distribution, and retail usage in real-time. This learning will be very important in the implementation of future projects. Different features and applications of the e₹-R token and architecture will be tested in future pilots.

RBI Selects Eight Banks and Thirteen Cities in Two Phases

India’s CBDC Launch 2022: RBI identified Eight banks for phase-wise participation in this pilot. State Bank of India, ICICI Bank, Yes Bank, and IDFC will be the First Banks in four cities across the country in the first phase. Four more banks, viz., Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank will become part of this pilot subsequently. 

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The pilot has been launched in four cities, viz., Mumbai, New Delhi, Bengaluru, and Bhubaneswar. Later Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla are all set to become testing grounds. The success will decide further extension of the scope of the pilot to include more banks, users, and locations.

What is the Retail Digital Rupee?

India’s CBDC Launch 2022: The retail e-Rupee is an electronic version of cash and is primarily meant for retail transactions. The private sector, non-financial consumers, and businesses will have access to safe money for payment and settlement under the direct liability of the central bank. CBDC is the legal tender issued by RBI in digital form. The only form is changed otherwise it is the same fiat currency and is exchangeable one-to-one.

Why Digital Rupee?

• Mushrooming of Cryptocurrencies A Threat to India’s Financial Stability: RBI has gauged the negative outcomes on the macroeconomic stability of the country. Its market cap is currently ₹1.1T. Ether (ETH), the currency for the Ethereum network is priced at ₹1,04,329, with a market cap of ₹12.8T. In the same time, Litecoin (LTC) is priced at ₹6,550.35, with a market cap of ₹470.1B. Ripple, or XRP, is another hugely popular token, with a market cap of ₹1.6T at its value ₹32.15.

• Expenditure on Security Printing is High: RBI spends high expenditure estimated on security printing. During the financial year 2021 – 2022, the estimated expenditure was approximated at ₹49.85 billion. The replacement of paper note currency with digital currency will eliminate the cost of printing. The citizens have well understood the importance of digital payments. India has witnessed digital payments growth rate of 55% in the last five years. RBI felt a strong necessity to introduce a risk-free legal tender digital currency.

What are the Advantages of CBDC?

India’s CBDC Launch 2022: Reserve Bank of India announced Central Bank Digital Currency (CBDC) to be a digital form of legal tender. Issued by a central bank, CBDC is a digital form of fiat currency, The Indian Rupee, and Paisa, is exchangeable for fiat currency between person to person or person to the merchant. The currency exchange will be through blockchain-based wallets. It will serve all purposes like cash and is also exchangeable with government-issued money. It is an alternative to western payment systems.

India’s CBDC Launch 2022: Other decentralized cryptocurrencies operate on a permissionless or public blockchain. Central bank control over the CBDC network means that access and control to the blockchain is limited to a select group of approved participants, permitting the central bank to retain control of the overall money supply.

• CBDCs are also ‘programmable money’ and payment tokens or digital fiat that can be designed with specific features and attributes.
• Retail central bank digital Rupee would be available for use by the public at large and in digital form it would effectively be the equivalent of a bank note.
• The tokens can be customized for the payment to transfer to the token holder directly into their wallet. 
• The central bank can design a digital Rupee to meet its monetary policy and economic objectives.

Classification of CBDC

For readers’ knowledge, the CBDC can be classified into two types –

• Retail (CBDC-R) for use by all
• Wholesale (CBDC-W) for use by select financial institutions

What is Blockchain Technology?

India’s CBDC Launch 2022: Blockchain technology is a form of distributed ledger technology. Blockchain is a decentralized, immutable ledger that transfers ownership, records transactions, tracks assets, and provides transparency, security, trust, and exchange of value in various types of digital asset transactions. Blockchain is a data recording system that is nearly impossible to alter, hack or cheat. This is a digital transaction book that is copied and distributed across a network of devices on the blockchain. Simply put, this technology helps store and trade digital currencies. It is also one of the safest ways to exchange currency digitally as it is difficult to tamper with.

India’s CBDC Launch 2022: Blockchains are deployed in multiple use cases of digital trust and exchange across industries, both inside and outside cryptocurrencies, as the contractual backbone of trust in the digital age. A real blockchain contains five elements: decentralization, encryption, immutability, tokenization, and decentralization. Once the model is distributed, these records cannot be changed. Blockchain is based on the principle of peer-to-peer networking where each encrypted block in the chain is linked to the next block.

India’s CBDC Launch: What are the potential benefits of a CBDC?

There are many potential benefits for the issuing central bank digital currency-

• Digital currency could provide a real-time picture of economic activity in a country. It will provide more truthful and timely economic data for GDP
• Citizens and businesses can do more efficient transactions with near instantaneous settlement at potentially a fraction of the cost.
• The authorities can trace CBDCs transactions far more effectively and will help in the fight against corruption and money laundering.
• The digital Rupee system will bolster India’s digital economy, enhance financial inclusion, and make the monetary and payment systems more efficient. 
• Reduction in cost associated with physical cash management.
• To achieve a less cash economy, Supporting competition, efficiency and innovation in payments, improve cross-border issues, Support financial inclusion
• Safeguard the trust of the common man in the national currency vis-a-vis proliferation of crypto assets.

What are the salient features of Digital Rupee 

• CBDC is a sovereign currency issued by central banks.  
• CBDC remains a liability on the central bank’s balance sheet. 
• CBDC is a legal tender, and a safe store of value for individuals, businesses, and government agencies. 
• CBDC is freely convertible against commercial bank money and cash.
• CBDC holders need not have a bank account. 
• CBDC’s issuance and transaction cost is lower.

How Is Digital Rupee Different from Money in Digital Form? 

 Reserve Bank of India specifies the difference between CBDC and money in digital form. CBDC is different from existing digital money available to the public. CBDC would be a liability of the Reserve Bank, and not of a commercial bank.

Digital Rupee vs Cryptocurrency

Cryptocurrencies are decentralized digital assets based on blockchain technology. It is not monitored or controlled by intermediaries such as financial institutions or judicial authorities.

CBDC is fully centralized and transactions are regulated and supervised by the Central Bank. All transactions are recorded on a public ledger and stored in a digital wallet. They don’t exist as physical paper money, they exist on the internet. They can be thought of as virtual tokens whose value is determined by market forces created by those who wish to buy or sell them.

FAQs About India’s CBDC Launch 2022