RBI launches Digital currency pilot project: What is Digital Rupee how different it is from other cryptocurrency

New Delhi: The Reserve Bank of India (RBI) commenced pilot launch of Digital Rupee (e₹) on November in the Digital Rupee - Wholesale segment (e₹-W). The use case for this pilot is 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 have been identified for participation in the pilot.

"Use of e₹-W is expected to make the inter-bank market more efficient. Settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk. Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot," RBI has said.

RBI added that the first pilot in Digital Rupee - Retail segment (e₹-R) is planned for launch within a month in select locations in closed user groups comprising customers and merchants.

What is Digital Rupee or e-Rupee or central bank digital currency?

CBDC is the same as currency issued by a central bank but takes a different form than paper (or polymer). It is sovereign currency in an electronic form and it would appear as liability (currency in circulation) on a central bank’s balance sheet. The underlying technology, form and use of a CBDC can be moulded for specific requirements. CBDCs should be exchangeable at par with cash.

How different is RBI’s digital currency from other cryptocurrencies?

RBI’s digital currency or A CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different. Meanwhile other Cryptocurrencies like Bitcoin, Ethereum or Dodgecoin are not considered as an equivalent to legal tenders. Infact, private cryptocurrencies have a lot of risks associated with them and volatility in their prices make it a dicey option for investors. Indian government has time and again reiterated that cryptocurrencies are not legal in India.