Retail CBDC pilot starts Dec 1, to be tested in 4 banks, 4 cities initially

RBI says digital rupee for retail segment will be in the form of a digital token that represents legal tender, to be issued in same denominations as paper currency and coins

Following the successful launch of its wholesale pilot for central bank digital currency, the Reserve Bank of India (RBI) said on Tuesday that it will commence with its retail CBDC pilot project from December 1.

The retail pilot project, which will cover select locations in closed user groups, will be in the form of a digital token that represents legal tender, the RBI said.

“It will be issued in the same denominations that paper currency and coins are currently issued. It will be distributed through intermediaries, i.e., banks. Users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones/devices,” the central bank said.

“The e₹-R would offer features of physical cash like trust, safety and settlement finality,” the RBI said.

The transactions using the retail CBDC can be both person-to-person as well as person-to-merchant and payments can be made using QR codes showed at merchant locations. However, as is the case with cash, the retail CBDC will not earn any interest, the RBI said, adding that it can be converted into other forms of money such as bank deposits.

“The token-based mechanism as announced by RBI for retail is more suited for the common retail customers both for individual customer transactions with selected merchants and also for one individual with another individual, initially to be used within the selected closed group,” Jyoti Prakash Gadia, managing director at Resurgent India, said.

“The four top cities have been rightly chosen for the pilot launch keeping in view the sufficient availability of customers well-versed in digital transactions usage in these cities,” he said.

In its initial stage, the pilot will cover four cities — Mumbai, New Delhi, Bengaluru and Bhubaneswar. The pilot shall be subsequently extended to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.

The RBI has identified eight banks for phase-wise participation in the retail CBDC pilot and the first phase shall commence with four lenders — State Bank of India, ICICI Bank, YES Bank, and IDFC First Bank. Four others — Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank — shall join the pilot later, the RBI said.

“The scope of pilot may be expanded gradually to include more banks, users and locations as needed,” the RBI said. According to the central bank, the pilot will test the strength of the entire process of digital rupee creation, distribution and retail usage in real time. The various features and applications of the e-rupee token and its architecture shall be tested in future pilots and will take learnings from the experience with this one, the RBI said.

“Since it provides a regulated alternative to cryptocurrencies in the market, the CBDC will lead to a more robust and reliable payments, lowering the dependency on cash,” Jaya Vaidhyanathan, CEO, BCT Digital said.

“The underpinning technology will make transaction costs low. Being interoperable with other payment systems, it will complement existing techniques like UPI, thus completing the mobile payments ecosystem,” she said.

On November 1, the RBI had launched the pilot for trading in the secondary market for government bonds using its CBDC – or the wholesale ‘e-rupee’.

According to data provided by the Clearing Corporation of India Ltd (CCIL), the CBDC bond trades in the first week averaged at Rs 287.5 crore on a daily basis. In the following week, the bond trades using the CBDC climbed to about Rs 500 crore. Since then, however, the volumes have tapered off, with trades averaging around Rs 220 crore over the last couple of days, CCIL data showed.

Daily trade volumes in the regular market for government bonds are typically around Rs 20,000-30,000 crore.

The central bank views the use of the digital rupee as a step towards making the inter-bank market more efficient. The sovereign bond market is the pricing benchmark for a vast variety of credit products in the economy.