The Reserve Bank of India’s sovereign digital currency will become a reality soon, as the first pilot — digital rupee in the Wholesale segment (e-W) — will be launched on Tuesday. The retail digital currency pilot is expected to begin this month.
According to the RBI, in the first phase, wholesale e-rupee will be used for secondary market transactions in government securities. “Use of e-W 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,” according to the RBI. Future pilots would focus on other wholesale transactions and cross-border payments based on the lessons learned from the first phase of the pilot, it added.
The RBI has been sceptical of private cryptocurrencies (or digital currencies), describing them as a significant risk to financial stability. It has previously called for an outright ban on private cryptos. However, the government has not taken a firm stance against these currencies, despite the fact that it has heavily taxed them (including a 30% capital gains tax and a 1% tax on each crypto transaction) in order to curb their growing popularity. The first pilot will include nine banks: SBI, BoB, Union Bank of India, HDFC, ICICI, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC.
The RBI issued a concept note on October 7 to raise awareness about the digital rupee. According to the concept note, the RBI-backed digital currency will provide the public with the benefits of virtual currencies while protecting consumers by avoiding the negative social and economic consequences of private virtual currencies.
According to the concept note, the wholesale e-rupee will operate on an account-based model, which will necessitate keeping track of the balances and transactions of all digital currency holders and indicating ownership of the monetary balances.
Sovereign virtual currency
While wholesale e-rupee will operate on an account-based model, retail digital rupee will operate on a token-based model.
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Pilot of Wholesale e-Rupee to begin from November 1, 2022.
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It is designed for limited access to specific financial institutions.
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Wholesale e-rupee is designed to settle inter-bank transfers and other wholesale transactions.
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SBI, BoB, HDFC, ICICI, and Kotak Mahindra Bank are among the nine banks chosen to participate in the pilot.
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Within a month, the first retail e-rupee pilot will be launched in select locations with closed user groups of customers and merchants.
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The Reserve Bank of India has been sceptical of private cryptocurrencies (or private digital currencies) and has labelled them as a major risk.
