The Central Bank Digital Currency (CBDC), which has been eagerly awaited, will be available to retail customers starting December 1st, as stated by the Reserve Bank of India (RBI). Commonly referred to as the "digital rupee", it will have exchange rates at par with other currencies, be accepted for payment, and serve as a safe store for value. Additionally, it will be used to issue virtual currency for the exchange of government securities.
The retail e-rupee will essentially be an electronic form of currency and be used mostly for retail transactions. Since it will be the central bank's direct obligation, it may be used by everyone, including the private sector, non-financial consumers, and enterprises. It will also be able to give access to secure money for payment and settlement.
How will the digital currency work?
The RBI's CBDC, also known as the digital rupee, is an exchangeable unit at par with the fiat currency and is described as being equivalent to a sovereign currency. It would exist as a digital token that stands in for legal money. It will be disseminated through intermediaries i.e. banks, and printed in the same denominations as coins and paper money.
Users will be able to transact in digital rupees using a digital wallet provided by participating banks and maintained on mobile phones and gadgets. Both person-to-person (P2P) and person-to-merchant (P2M) transactions are possible (P2M using the QR codes available at merchant locations which can be used to make payments to retailers). The digital rupee would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks, RBI said in a statement.
One can examine the balance in their wallet in a manner similar to checking their bank balance. The foundation of CBDC will be blockchain technology. Individuals will be able to pay it to whoever they want and it will be credited to their account.
What are the types of digital currency?
The RBI has divided the digital rupee into two major categories: general purpose or retail (CBDC-R) and wholesale (CBDC-W). This division is based on how the digital rupee is used and what tasks it performs as well as the various accessibility levels.
Wholesale CBDC is intended to only be accessed by a small number of financial institutions. It has the ability to improve operating costs, the usage of collateral, and liquidity management by making the settlement systems for financial transactions carried out by banks in the government securities (G-Sec) segment, the interbank market, and the capital market more secure and efficient.
Retail CBDC can be utilised by anybody, including the private sector, non-financial customers, and corporations. Given that retail CBDC is a direct obligation of the central bank, it can give users access to secure money for payments and settlement.
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 digital currency will be tested in future pilots, based on the learnings from this pilot, RBI said in a statement.