RBI retail digital rupee pilot starts: Who can use e-Rupee?

The retail pilot of the Reserve Bank of India’s (RBI) digital currency went live on December 1, 2022. Touted as e-Rupee or digital rupee, the RBI's central bank digital currency (CBDC) is an electronic form of sovereign currency.

Here’s all you need to know about the retail pilot launch of RBI's digital rupee, according to the central bank’s notifications issued on October 7 and November 29, 2022.

What is retail e-Rupee?

Retail digital rupee can provide access to safe money for payment and settlement as it is a direct liability of the central bank, believes the Reserve Bank of India. Simply put, retail CBDC is an electronic version of cash primarily meant for retail transactions.

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How will the retail digital rupee look?
The central bank has proposed a token-based tiered architecture model for the retail digital rupee, according to the concept note released by the Reserve Bank of India on October 7, 2022. A token-based CBDC is similar to banknotes which means whoever holds it is presumed to own it. In a token-based CBDC, the person receiving a token will verify that his ownership of the token is genuine. "A token-based CBDC is viewed as a preferred mode for CBDC-R as it would be closer to physical cash," RBI earlier mentioned.

Who will issue and manage the retail digital rupee?
The retail digital rupee is proposed to be distributed through the two-tier model, according to the concept note. The Reserve Bank of India will issue and redeem e₹-R while the distribution and payment services will be delegated to the banks. The model is similar to the current physical currency management system wherein banks manage activities like distribution of notes to the public, account-keeping, adherence to requirements related to know-your-customer (KYC) and anti-money laundering and countering the terrorism of financing (AML/CFT) checks, transaction verification, etc.

Which banks and cities are participating in the retail digital rupee pilot programme?
Eight banks have been identified for phase-wise participation in the retail pilot of the digital rupee in four cities across the country. In the first phase, four banks including State Bank of India, ICICI Bank, YES Bank, and IDFC First Bank will take part in the pilot launch. Four more banks — Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank will join this pilot subsequently.

The pilot will initially cover four cities — Mumbai, New Delhi, Bengaluru, and Bhubaneswar. It will later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.

Currently, customers and merchants in the CUG in these cities will be able to use the e-rupee or digital rupee. "Retail e-Rupee will also enjoy fungibility with other forms of money. The idea largely is to move towards a cashless society and to provide the same privileges to end users that they enjoy with cash but largely in a digitised manner," said Mayank Goyal, Founder and CEO, moneyHOP.

"The scope of the pilot may be expanded gradually to include more banks, users, and locations as needed," RBI said.

Can you use retail digital rupee?
The pilot project of retail e₹-R will cover select locations in closed user groups (CUG) which will include both the customers and merchants.

The retail digital rupee is potentially available for use by all private sector, non-financial consumers, and businesses, as RBI mentioned in the concept note earlier.

How to use e₹-R?
The e₹-R will be issued in the same denominations that paper currency and coins are currently issued. Users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones or devices.

"Customers will be able to create a wallet having digital tokens of e₹-R and can use it for various transactions or use cases with selected banks in the pilot. The e₹-R will be legal tender backed by the central bank and will be interoperable with existing bank accounts," said Mihir Gandhi, Partner & Leader - Payment Transformation, PwC India. e₹-R for can be used for both person-to-person (P2P) and person-to-merchant (P2M) transactions. Customers can make payments to merchants using QR codes displayed at merchant locations.

Do note that the retail digital rupee will not earn any interest and can be converted to other forms of money, like deposits with banks.

“Affordable, safer, and easier payments for all”
“RBI CBDC aims to fulfill the promise of affordable, safer, and easier payments for all. Since it provides a regulated alternative to cryptocurrencies in the market, the CBDC would lead to more robust and reliable payments, lowering the dependency on cash. The underpinning technology would make transaction costs low. Being interoperable with other payment systems, it will complement existing techniques like UPI, thus completing the mobile payments ecosystem,” said Jaya Vaidhyanathan, CEO, BCT Digital, a RegTech company.