RBI ropes in banks for beta-testing the digipee for retail transactions

RBI has roped in five banks to work on the digital rupee - digipee - for retail transactions. This is a logical step after the pilot launch of the central bank digital currency (CBDC) for the wholesale segment to settle secondary market transactions in government securities. The digipee for retail targets consumers, providing them access to safe money for payment and other settlements. This will reduce cash use and lower currency management costs. GoI and RBI can bank on the experience of building various Indian digital systems successfully at scale to swing CBDC in the retail segment too.

Justifiably, RBI favours a token-based CBDC for retail as users will find it convenient to withdraw digital tokens from banks, just as they withdraw cash. These tokens can be stored in a wallet and users can spend them online or transfer them via an app. With a unique token number generated, counterfeiting of tokens can be detected easily. A token-based system is also seen as supporting innovation. But there are concerns that the digipee for retail could replace the aggregate amount of deposits in banks, and raise credit costs. It could also create a new competitive front for payment solution providers. How well banks will reinvent themselves post-CBDC is an open question.

Cash is used for small-value transactions despite the rise in digital payments. And RBI is well aware of the need for anonymity in small transactions. Multiple strategies must be evolved. One path could be the interface with the Unified Payments Interface (UPI) for interconnection between ongoing digital payments and the retail CBDC for transaction values below a certain level. One should ensure that the infrastructure of CBDC is resilient to cybersecurity threats.