The Reserve Bank of India will launch the first pilot of digital rupee for the wholesale segment on November 1, 2022.

The use case for this pilot is settlement of secondary market transactions in government securities, the central bank says, adding that the move 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 banking regulator says.

Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot, says the RBI.

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 identified for participation in the pilot.

The first pilot in Digital Rupee - Retail segment (e₹-R) is planned for launch within a month in select locations in closed user groups comprising customers and merchants, the central bank says, adding that the details regarding operationalisation of the pilot shall be communicated in due course.

The RBI on October 7 released a concept note on Central Bank Digital Currency (CBDC), saying the purpose behind it is to create awareness about CBDCs in general and the planned features of the Digital Rupee (e₹), in particular.

The concept note examined the implications of introduction of CBDC on the banking system, monetary policy, financial stability, and analyses privacy issues. The note discussed key things such as technology and design choices, possible uses of Digital Rupee, issuance mechanisms, etc.

"The e₹ will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper. It also has all the transactional benefits of other forms of digital money," the banking regulator had said.

The RBI is currently engaged in working towards a phased implementation strategy, going step by step through various stages of pilots followed by the final launch, and simultaneously examining use cases for the issuance of its Digital Rupee (e₹), with minimal or no disruption to the financial system.

"Currently, we are at the forefront of a watershed movement in the evolution of currency that will decisively change the very nature of money and its functions," the RBI had said.

The banking regulator broadly defines CBDC as the legal tender issued by a central bank in a digital form. It is akin to sovereign paper currency but takes a different form, exchangeable on par with the existing currency and shall be accepted as a medium of payment, legal tender and a safe store of value. CBDCs would appear as liability on a central bank’s balance sheet.

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