RBI E-Rupee: Digital rupee pilot started on November 1st


The Reserve Bank of India commenced its pilot program of the digital rupee on November 1st. So far, nine banks have been selected to participate in this RBI CBDC pilot. These banks include HSBC, Bank of Baroda, State Bank of India, Union Bank, Kotak Mahindra Bank, Yes Bank, IDFC Bank, HDFC and ICICI. 

As stated by the RBI notification issued on October 31st “The pilot will be used for settlements in secondary market transactions in government securities”

Banks traded a total of INR 275 Crore in bonds on the first day using the newly created digital rupee. 

The RBI has proposed two versions of the digital rupee. One version is for retail customers(CBDC-R) who can use the digital rupee for payments. The second version is CBDC-W used for wholesale transactions between select financial institutions. The Digital rupee will soon be available for the retail market in a month as per RBI.

Uses of CBDC

CBDCs are the digital counterpart of a country’s currency. “ A CBDC would differ from existing digital money available to the public because a CBDC would be the liability of the reserve bank and not any commercial bank” as per a statement from RBI. 

CBDCs can bolster the economy by preventing leakages in the system and ensuring the timely allocation of funds. It also helps the reserve bank track the movement of money efficiently. This will ensure that funds do not exit the system and provide opportunities for greater financial inclusion. 

However, a CBDC is very different from crypto. A CBDC is issued by a central authority whereas cryptos are powered by decentralised blockchains which are not owned by a single entity.  At the same time, CBDCs are not a competition to crypto. The value of a CBDC is the same as the rupee and it makes financial systems more efficient. A purely digital rupee also prevents the loss of money due to physical damages and has an unlimited lifetime. On the other hand, crypto assets are investment instruments with each crypto having its use case. Binance CEO Changpeng Zao also appears to have eased his view on CBDCs stating that he does not perceive CBDCs to be a threat to crypto. Rather, he believes that CBDCs that run on blockchains can build trust amongst those who are apprehensive about the technology.

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