The Reserve Bank will roll out the first pilot for retail digital rupee (e₹-R) on December 1, whereby users will be able to transact with e₹-R through a digital wallet offered by participating banks and stored on mobile phones / devices. 

Eight banks have been identified for phase-wise participation in this pilot, which will cover 13 cities, for Person to Person (P2P) and Person to Merchant (P2M) transactions. 

The pilot for comes a month after RBI commenced the first pilot in digital rupee – wholesale segment (e₹-W) with the use case — ‘settlement of secondary market transactions in government securities’. 

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The aforementioned CBDC (Central Bank Digital Currency) initiatives are expected to bring further efficiencies in payment processing and settlements. 

RBI said the pilot would cover select locations in closed user group (CUG) comprising participating customers and merchants.  

Digital token

The e₹-R, which would be distributed by banks, would be in the form of a digital token that represents legal tender. It would be issued in the same denominations that paper currency and coins are currently issued.  

RBI said payments to merchants can be made using QR codes displayed at merchant locations. The e₹-R 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. 

First phase

The first phase of the pilot will begin with four banks — State Bank of India, ICICI Bank, YES Bank and IDFC First Bank — in four cities across the country. Four more banks — Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank — will join this pilot subsequently.  

The pilot would initially cover  Mumbai, New Delhi, Bengaluru and Bhubaneswar and later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla.  

The scope of pilot may be expanded gradually to include more banks, users and locations as needed.

V. Vaidyanathan, Managing Director & CEO, IDFC First Bank, said, “Today, India spends close to ₹5,000 crore a year in printing physical cash. God knows how many trees we cut and how much print we consume in printing these notes. Moving to digital currency will be a huge gain for environment, and for our trees.

“Further, it’s easier to carry than cash, you can carry only that much currency in your pocket, it would be bulky beyond say ₹2,000-2,500. CBDC is currency in the same denominations, it is easier. And more secure too. If you lose your wallet you lose your cash unlike in digital currency. Over time this is a big gain. RBI has done a wonderful job putting this together, the concept, technology, blockchain, reconciliation etc. For the common person, this is more anonymous than the current and the traditional digital transactions, as these are wallet to wallet and not touching the bank account for every transaction.” 

Anand Kumar Bajaj, Founder, MD & CEO, PayNearby, said: “The participation of both merchants and customers will help in creating greater awareness and build trust around CBDC. When it comes to payments done at merchants’ outlets, QR codes are already working wonders. With e₹-R also being supported via QR codes at these outlets, we hope to see greater adoption. 

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“Retail CBDCs hold the potential to move Bharat towards a more inclusive financial ecosystem.”