RBI to launch pilot of e-rupee today

Settlement in central bank money would reduce transaction costs, according to Reserve Bank of India.

RBI

NEW DELHI: The Reserve Bank of India’s sovereign digital currency is going to be a reality soon as it launches the first pilot -- digital rupee in the Wholesale segment (e-W) -- on Tuesday. The pilot for retail digital currency is likely to be launched this month.

The RBI in a statement said in the first phase, wholesale e-rupee will be used for settlement of secondary market transactions in government securities. “Use of e-W is expected to make the inter-bank market more efficient. Settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk,” the RBI said. Based on the learning from the first phase of the pilot, the future pilots would focus on other wholesale transactions, and cross-border payments, it further said.

The RBI has been sceptical of private cryptocurrencies (or digital currencies), and has termed them a big risk to the financial stability. It has called for outright ban of private cryptos in the past. However, the government has not taken a firm stand against these currencies, though it has taxed them heavily (including 30% capital gains tax and 1% tax on each crypto transaction) to check their growing popularity. Nine banks -- SBI, BoB, Union Bank of India, HDFC, ICICI, Kotak Mahindra Bank, Yes Bank, IDFC First Bank and HSBC -- have been identified for participation in the first pilot.

On October 7, the RBI released a concept note to create more awareness about the digital rupee. In the concept note, RBI has said the RBI-backed digital currency will provide the public with benefits of virtual currencies while ensuring consumer protection by avoiding the damaging social and economic consequences of private virtual currencies.

As per the concept note, the wholesale e-rupee will work on an account-based model, which would require keeping record of balances and transactions of all holders of digital currency and indicate the ownership of the monetary balances.

Sovereign virtual currency

While wholesale e-rupee will work on an account-based model, retail digital rupee will be token based

• Pilot of Wholesale e-Rupee to begin from November 1, 2022
• It is designed for restricted access to select financial institutions
• Wholesale e-rupee is intended for settlement of inter-bank transfers and related wholesale transactions
• Nine banks including SBI, BoB, HDFC, ICICI, Kotak Mahindra Bank have been identified for participation in the pilot
• First pilot in retail e-rupee will be launched within a month in select locations in closed user groups comprising customers and merchants
• RBI has been sceptical of private cryptocurrencies ( or private digital currencies) and has termed them as big risk