India unveils its first commercial digital rupee to empower SMEs

By Puja Sharma

The Reserve Bank of India (RBI) has planned to launch its first commercial digital rupee (e₹-R) pilot on the 1^st of December 2022. The central bank announced in an official publication that the currency will be a digital token representing legal tender.

It will be issued in the same denominations as paper currency and coins are currently issued,” the release said. It further noted that the pilot project will include certain locations in closed user groups (CUG) of participating customers and merchants. The digital rupee will be distributed through banks and users can transact with it through a digital wallet stored on mobile phones/devices provided by participating banks, RBI said.

Banks would distribute the e₹-R in the form of a digital token that stands in for legal tender. It would be distributed in the same denominations that coins and paper money are now distributed in. According to RBI, customers can make payments to merchants by scanning QR codes posted on storefronts.

The e-R would provide characteristics of actual money, such as trust, safety, and finality of settlement. Like cash, it won’t accrue interest and can be changed into other forms of payment like bank deposits.

Deepak Kothari, Co-founder, of ftcash, an RBI-registered NBFC aiming to empower micro-merchants and small businesses by bridging the lending gap with accessible loans said, “CBDC-backed currencies are a logical next step in the journey of digital currencies. It eliminates several of the inefficiencies which mar cryptocurrencies by providing stability and comfort with the backing of the central bank (RBI). This will usher a new era of digitisation which will enable commerce to be done by CBDCs.”

Phase one

Four banks—State Bank of India, ICICI Bank, YES Bank, and IDFC First Bank–in four cities across the nation will participate in the pilot’s initial phase.

The pilot’s reach may be gradually increased as necessary to include additional banks, users, and locations. The managing director and chief executive officer of IDFC First Bank, V. Vaidyanathan, stated, “Today, India spends close to 5,000 crores a year in the printing of physical cash. It is unknown how many trees were sacrificed and how much paper was used to print these notes. The environment and our trees will benefit greatly from the switch to digital currency.”

Later on, this pilot will include four additional banks: Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank. Mumbai, New Delhi, Bengaluru, and Bhubaneswar would be the initial cities covered by the pilot, with Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla being added later.

Anand Kumar Bajaj, Founder, MD & CEO, PayNearby, India-based branchless banking & digital network said, “The launch of the first pilot for retail CBDC is a welcome move. 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. Our integration with retailers across 20,000+ PIN codes, including kirana stores which serve as a multi-utility point for consumers in the remote areas of Bharat, will further accelerate the Government’s initiative of a cashless nation backed by e₹-R. We are looking forward to the different features and applications of the e₹-R token and architecture, which will emerge out of this pilot testing. Retail CBDCs hold the potential to move Bharat towards a more inclusive financial ecosystem.