RBI launches the first pilot of e-rupee.

RBI launches the first pilot of e-rupee

       The digital currency of RBI - Reserve Bank of India is going to be a reality now, as it soon launches the first pilot - Digital Rupee in the wholesale segment on Monday.

 The RBI said, in its first phase, wholesale e-rupee (e-W) will be used for the settlement of secondary market transactions in government securities. 

Nine banks—State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC—will participate in the pilot.

In October, RBI issued a concept note on central bank digital currency (CBDC), listing the risks and benefits of introducing these currencies.

RBI said the concept note “broadly defines CBDC as the legal tender issued by a central bank in a digital form. It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency, and shall be accepted as a medium of payment, legal tender, and a safe store of value. CBDCs would appear as a liability on a central bank’s balance sheet."

The concept of CBDC was first announced in the FY23 budget when finance minister Nirmala Sitharaman said RBI would roll out the digital equivalent of the rupee this fiscal in the Union Budget tabled in Parliament on February 1, 2022.

According to the FM, the introduction of CBDC will boost the digital economy and will be based on blockchain technology.

Key benefits:

1.Digital currency can never be torn, burned, or physically damaged. 

2.They are also not physically lost.

3.In comparison to notes, the lifeline of a digital form of currency will thus be indefinite.

4.The Digital Rupee will bring with it another significant advantage in terms of cryptocurrencies which is that it will be governed by a central authority, reducing the volatility risk associated with other digital currencies such as Bitcoin. 

The RBI has repeatedly expressed concerns about private cryptocurrencies such as Bitcoin, Ether, and others being used for money laundering, terror financing, and tax evasion.

The introduction of its own CBDC has been viewed as a means of bridging the benefits and risks of digital currency.

It's a welcome step towards digitization.

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