After a slow start, the Central Bank Digital Currency (CBDC-R or e₹-R) has picked up pace. The number of retail users of CBDC-R is expected to touch 50,000 at the end of this month. Currently, this number stands at around 16,000. The Reserve Bank of India (RBI) launched a pilot project for e₹-R on December 1 last year. Official sources said the digital currency is progressing rather well. “Since the launch of the pilot, around 16,000 users conducted transactions worth approximately ₹64 lakh,” sources said. And with further ease of use, awareness and more points for acceptability, the expectation is that the pace will quicken. The pilot on Digital Rupee -Wholesale (e₹-W) was launched on November 1. At present, average daily transaction for e₹-W is ₹200 crore.

e₹-R is a form of fiat currency apart from paper and metal currency. It is in the form of a digital token that represents legal tender. It is being issued in the same denominations as the paper currency and coins and being distributed through financial intermediaries, i.e., the banks. Users will be able to transact with e₹- R through a digital wallet offered by the participating banks. Transactions can be both Person to Person (P2P) and Person to Merchant (P2M). The e₹-R offers features of physical cash like trust, safety and settlement finality. Like cash, the CBDC will not earn any interest and can be converted to other forms of money, like deposits with banks.

Eight banks are participating in the retail pilot project. These include State Bank of India, ICICI Bank, the Yes Bank, IDFC First Bank. Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank. Use of e₹-R is voluntary and it is part of total currency in circulation.

An official said e₹-R is using API (Application Programming Interface). It is is a way for two or more computer programmes to communicate with each other. “There is no intermediary involved in transaction of e₹-R for user. However, in case of transaction between individual banks and the central bank, blockchain technology is being used,” he said.

Ensuring anonymity

The biggest issue with digital currency is anonymity. In its concept note, RBI had said that for CBDC to play the role as a medium of exchange, it needs to incorporate all the features that physical currency represents including anonymity, universality, and finality. However, ensuring anonymity for a digital currency remains a challenge as all digital transactions leave trail. Thus, the degree of anonymity remains a key design decision for any CBDC. Reasonable anonymity for small value transactions is being thought of as the most desirable option for CBDC-R. “Legal provision to be implemented with technology is being considered to ensure anonymity,” another source said.

Last week, RBI Governor Shaktikanta Das had said that the central bank is being extremely cautious about CBDC. “If there is cloning or anything which happens, it can be very, very risky. So we are moving through it very carefully.”