New Delhi: Sept 5, 2023

 “Central Bank Digital Currency” or “Digital Rupee” or “e₹” is the digital form of India’s currency, the Rupee. It is akin to sovereign paper currency but takes a different form and is exchangeable at par with the existing currency, the Rupee. As a central bank liability, e₹ provides the public with a risk-free medium of exchange and represents a safe store of value. e₹ offers features of physical cash like trust, safety, and instant settlement finality and is non-interest bearing. 

2The key motivations for exploring the issuance of CBDC include reduction in operational costs involved in physical cash management, adding efficiency to the settlement system, boosting innovation in cross-border payments space, fostering financial inclusion, providing public with uses that any private digital objects/ tokens can provide and be future ready, without the associated risks. 

The introduction of CBDC in India by the RBI required an enabling legal framework. The Government of India vide gazette notification dated March 30, 2022 notified the necessary amendments in the Reserve Bank of India Act, 1934, conferring the status of legal tender to ‘Digital Rupee’, thus, enabling the commencement of pilots. The RBI is presently engaged in working towards a phased implementation strategy before a decision on the final launch is taken.  The pilots commenced on November 1, 2022 for wholesale e₹ and on December 1, 2022 for retail e₹.  

The wholesale pilot for secondary market settlement of government securities allows simultaneous settlement of funds and securities avoiding the need of central counterparties (CCP) charges and settlement guarantee infrastructure or need for collateral for settlement risk.

In the retail pilot, e₹ can be held or used to carry out transactions by digital wallets provided by banks. The retail pilot tests the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. e₹ is issued in the same denominations that paper currency and coins are currently issued. In the current design, e₹ is distributed by a two-tier model where it is created by RBI and distributed through banks.

The pilot started with four cities and four banks and has now been expanded to include thirteen banks and twenty-six locations and has more than 1.75 million users and merchants.

The e₹ pilots have been successful in testing the legal, operational and technical preparedness as well as accounting treatments required for e₹ issuance. It has also helped in understanding the user and merchant behaviour and requirements. Based on the experience gained, different use cases and technical architecture will be tested in future pilots. Features like offline usage to provide resiliency and availability in the absence of network and programmability i.e., tying the use of funds to specific use cases are also being considered.

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