Digital Rupee: RBI plans to expand CBDC pilot to include more banks and locations

The Reserve Bank of India (RBI) wants to expand the ongoing pilot of the Central Bank Digital Currency (CBDC) and incorporate various use cases and features in 2023-24. In its annual report for 2022-2023, the central bank said, "During 2023-24, the Reserve Bank aims at expanding the ongoing pilots in CBDC-Retail and CBDC-Wholesale by incorporating various use cases and features."

"The pilot in CBDC-Retail is proposed to be expanded to more locations and to include more participating banks," it added.

What is Digital Rupee or e₹?

Touted as the e-Rupee or Digital Rupee, the RBI CBDC is an electronic form of sovereign currency. The central bank proposed to issue two versions of the Digital Rupee — CBDC-Wholesale (CBDC-W) and CBDC-Retail (CBDC-R). CBDC-Wholesale is designed for restricted access to select financial institutions while CBDC-Retail can be used by all including the private sector, non-financial consumers, and businesses.

Wholesale Digital Rupee: All you need to know
The pilot programme of wholesale Digital Rupee segment started on November 1, 2022. The use case for this pilot is the settlement of secondary market transactions in government securities (G-secs). The use of CBDC-W is expected to make the inter-bank market more efficient, the central bank said. Nine banks including State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC have been participating in the pilot of CBDC-Wholesale.

"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," RBI said.

Retail Digital Rupee: What is it?
The first pilot for CBDC-Retail was announced on December 1, 2022. Also known as retail Digital Rupee, it offers features of physical cash like trust, safety, and settlement finality in digital mode.

e₹-R can be held or used to carry out transactions, similar to how currency notes can be used in physical form. The retail e-Rupee has been launched in denominations of 50 paise, 1, 2, 5, 10, 20, 50, 100, 200, 500, and 2000, while wholesale e-Rupee does not envisage any denomination, RBI said in its annual report.

The retail Digital Rupee is proposed to be distributed through the two-tier model, according to the concept note released by RBI earlier. The Reserve Bank of India will issue and redeem e₹-R while the distribution and payment services will be delegated to the banks.

The pilot of the retail e-Rupee was launched in Mumbai, New Delhi, Bengaluru, and Bhubaneswar, comprising participating customers and merchants in a closed user group (CUG). Later other locations including Ahmedabad, Chandigarh, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla were added to the pilot programme in phases. The pilot began with four banks including State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank while four other banks — Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank joined it subsequently. Five more banks including Punjab National Bank, Canara Bank, Federal Bank, Axis Bank, and IndusInd Bank are in the process of joining the pilot.

The scope of the pilot of retail Digital Rupee is being expanded gradually to include more banks, users, and locations as needed, the central bank said.

“The results of both the pilots so far have been satisfactory and in line with expectations,” RBI mentioned.