CBDC: RBI to Commence Pilot Launch of E-Rupee for Specific Use Cases

The Reserve Bank on Friday said it will soon commence the pilot launch of e-rupee for specific use cases with a view to bolstering India's digital economy, making payment systems more efficient, and checking money laundering.

In a concept note on Central Bank Digital Currency, the RBI said CBDC is aimed to complement, rather than replace, current forms of money and is envisaged to provide an additional payment avenue to users, not to replace the existing payment systems.

"Supported by state-of-the-art payment systems of India that are affordable, accessible, convenient, efficient, safe and secure, the Digital Rupee system will further bolster India's digital economy, make the monetary and payment systems more efficient and contribute to furthering financial inclusion," the paper said.

CBDC is a digital form of currency notes issued by a central bank. While most central banks across the globe are exploring the issuance of CBDC, the key motivations for its issuance are specific to each country's unique requirements.

The Government of India had announced the launch of the Digital Rupee — a Central Bank Digital Currency (CBDC) from fiscal year 2022-23 onwards in the Union Budget placed in Parliament on February 1, 2022.

The central bank said, "The Reserve Bank will soon commence pilot launches of e-rupee for specific use cases. As the extent and scope of such pilot launches expand, RBI will continue to communicate about the specific features and benefits of e-rupee, from time to time." CBDC can be classified into two broad types -- general purpose or retail (CBDC-R) and wholesale (CBDC-W). Retail CBDC would be potentially available for use by all and while wholesale CBDC is designed for restricted access to select financial institutions.

"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," the note said.

Across the globe, the note said more than 60 central banks have expressed interest in CBDC with a few implementations already under pilot across both Retail and Wholesale categories and many others are researching, testing, and/or launching their own CBDC framework.

The concept note presents the background, motivation, choices of design features and other policy frameworks for e-rupee system for the country.

The aim is to build an open, inclusive, interoperable and innovative CBDC system which will meet the aspirations of the modern digital economy of India, it said.

The paper also noted that the potential impact on monetary policy from an introduction of CBDC is still unclear and is purely speculative given that only limited CBDCs are currently in existence as few nations have issued till date.

After factoring in the concerns related to anonymity, appropriate analytics of big data generated from CBDC can assist in evidence-based policy making.

"It may also become a rich data source for service providers for financial product insights. Further, the data would be highly useful for enforcing money laundering regulations," it said.

The purpose behind the issue of this concept note is to create awareness about CBDCs in general and the planned features of the digital rupee, in particular, the RBI said.

The note also seeks to explain Reserve Bank's approach towards introduction of the digital Rupee.

Reserve Bank said it's approach is governed by two basic considerations – to create a digital Rupee that is as close as possible to a paper currency and to manage the process of introducing digital rupee in a seamless manner.