RBI Launched Digital Rupee First Pilot Program in India
CBDC (Central Bank Digital Currency) is a digital version of legal tender issued by the RBI. It complements current forms of money and is intended to provide another payment avenue for users. It is envisaged to serve both the retail and wholesale segments. To achieve this, the RBI is exploring two different approaches, one for retail transactions and the other for wholesale transactions.
The pilot will be conducted in nine major Indian banks, including the State Bank of India, Bank of Baroda, ICICI Bank, IDFC Bank, HDFC bank, Union Bank of India, and Kotak Mahindra Bank. It is expected to make cross-currency payments more efficient and lower the cost of transactions.
The Reserve Bank of India has decided to launch the digital rupee in the wholesale market first, and will follow this with a retail test within a month. The banks that will be participating in the pilot include the Union Bank of India, Bank of Baroda, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, and YES Bank. The digital rupee is expected to make interbank trading in government securities more efficient.
The RBI has repeatedly expressed its opposition to private digital currencies. However, it has been in contact with the government and proposed expanding the scope of the paper rupee. In October, Nirmala Sitharaman, the Union Finance Minister, announced that RBI would introduce CBDC by 2022. This was the first official announcement from the government about the introduction of the digital currency. She said that the new digital currency would boost the digital economy and that it would be based on blockchain technology.
The RBI has selected nine banks to participate in the pilot. The banks will use the digital currency to settle secondary market transactions in government securities. The RBI has also identified nine leading banks to participate in the pilot. Among these are the State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Yes Bank, IDFC First Bank, HSBC, and Kotak Mahindra Bank. The pilot will last for about a month.
Digital Rupee is a centralized digital currency, and this will reduce the risks associated with volatility. However, the RBI is also worried about the risks associated with private cryptocurrencies, especially those used for terror financing, money laundering, and tax evasion. The central bank is attempting to reconcile the risks and benefits of digital currency by introducing CBDCs into the financial system.
Digital Rupee will be supported by state-of-the-art payment systems in India. This will create a more convenient, efficient, safe, and affordable payment system for Indian consumers. Further, it will be a vital step towards financial inclusion in the country.