The much-anticipated Central Bank Digital Currency (CBDC), a form of legal cryptocurrency, has been launched by the Reserve Bank of India (RBI) for retail users. According to the RBI, the first phase of a pilot project will cover a few specific locations and banks in a closed user group (CUG) made up of participating customers and merchants.
Customers and merchants will be able to utilise the digital rupee (e-R), or e-rupee, in the four cities of Mumbai, New Delhi, Bengaluru, and Bhubaneswar, as part of the test. The controlled introduction of the digital currency in these four cities will be carried out by four banks: State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank.
According to the statement, the pilot’s parameters may be gradually expanded to cover more banks, users, and places.
The retail e-rupee will essentially be an electronic version of cash and be used mostly for retail transactions. Since it will be the central bank’s direct liability, 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.
The e-R would take the shape of a digital token that stands in for money. It will be disseminated through middlemen, i.e., banks, and printed in the same denominations as coins and paper money.
According to the RBI, users will be able to conduct transactions with e-R using a digital wallet provided by the participating banks and kept on mobile phones and other devices.
The general purpose (retail) and wholesale categories of the digital rupee have been established by RBI based on the usage and functions carried out by it as well as the various levels of accessibility.
To settle secondary market transactions in government securities, the RBI introduced the digital rupee for the wholesale sector on November 1.
The pilot programme, according to the central bank, would assess the stability of the complete creation, distribution, and retail use of digital rupees in real time.
The RBI had previously stated that among other things, the reduction of operational costs associated with physical cash management, promoting financial inclusion, and bringing resilience, efficiency, and innovation to the payments system are the main reasons for considering the issuance of CBDC in India.
It will improve the settlement system’s efficiency, spur innovation in the area of cross-border payments, and give the general public access to applications that any private virtual currency can offer, without the risks involved.
The RBI has regularly raised concerns about the use of private cryptocurrencies like Bitcoin, Ether, etc. for money laundering, terrorism financing, tax evasion, etc. Its own CBDC launch has been viewed as a method to balance the benefits and dangers of digital money.
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