RBI’s digital rupee: All you need to know about the virtual currency in the works

Dec 1, 2022

By: Vaamanaa Sethi & Eetika Kapoor

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What is digital rupee?

The Reserve Bank of India (RBI) launched its first retail digital rupee (e₹-R) pilot on December 1.The digital rupee would be in the form of a digital token that represents legal tender and is interchangeable one-to-one at par with the fiat currency.

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Source of the digital rupee

It would be distributed through the intermediaries, i.e., banks.

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Banks included in the pilot

Eight banks have been identified for phase-wise participation in this pilot. The first phase will have four banks – State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank in four cities. Four more banks – Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank – will join subsequently.

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Cities covered in the pilot

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

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How to use it?

Users will have to make the transactions through a digital wallet offered by the participating banks and stored on mobile phones/devices. The digital rupee can be used for both person-to-person (P2P) and person-to-merchant (P2M) transactions.

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QR codes, UPI payments

Payments to merchants can be made using QR codes displayed at merchant locations. “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,” said Jaya Vaidhyanathan, CEO, BCT Digital.

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Trusted but earns no interest

The RBI said that this digital rupee will offer trust, safety and settlement finality like the physical currency. However, it will not earn any interest and can be converted to other forms of money, like deposits with banks.

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In which denominations will it be available?

“The denominations are the same that are in circulation — say ₹10, ₹100, ₹200, ₹500, etc. Even 50 paise and 1 rupee coins are being issued digitally,” V Vaidyanathan, MD and CEO, IDFC First Bank, told Business Standard.

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Pilot review

The pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. Different features and applications of the digital rupee token and architecture will be tested in future pilots, based on the learnings from this pilot, RBI said.

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A risk-free virtual currency

This digital rupee would be RBI’s risk-free virtual currency that will provide users the legitimate benefits of a secure digital currency without the risks of dealing in private virtual currencies.

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