RBI to launch E-Rupee on pilot basis for limited use; issues concept paper

The central bank will also commence pilot launches of e-rupee for specific use cases, it said in a statement. As the extent and scope of such pilot launches expand, the RBI will continue to communicate about the specific features and benefits of digital rupee, from time to time. “The e-rupee will provide an additional option to the currently available forms of money. It is substantially not different from banknotes, but being digital it is likely to be easier, faster and cheaper,” the RBI said.

By Aditya Raj Das

The Reserve Bank of India today said it will soon commence pilot launch of e-rupee for specific use cases and also released a concept note on Central Bank Digital Currency (CBDC) that aims to create awareness about such currencies in general and the planned features of the Digital Rupee in particular.

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 (e?) 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? 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.

Here are the key highlights of the RBI’s concept note on digital currency.

1. The concept note states that the central bank digital currency is a sovereign currency issued by the central banks in alignment with the monetary policy. It will appear as a liability on the central bank’s balance sheet.
2. The digital currency must be accepted as a medium of payment, legal tender and a safe store of value by all citizens, enterprises and government agencies.
3. The digital currency will be freely convertible against commercial bank money and cash. It will be a fungible legal tender for which holders need not have a bank account.
4. It is expected to lower the cost of issuance of money and transactions. Faced by a dwindling usage of paper currency, the central banks are now seeking to popularise a more acceptable electronic form of currency.
5. The central bank’s digital currency will be supported by the state-of-art payment systems of India that are affordable, accessible, convenient, safe and secure. The RBI concept note says the e-rupee will bolster India’s digital economy, enhance financial inclusion and make the monetary and payment systems more efficient.
6. The digital currency should be developed as a platform which is highly scaleable to support very high volume and rate of transactions without performance degradation. It should be robust to ensure stability of financial ecosystem and have tamper-proof access control protocols and cryptography for safety of data among other features.
7. Citing concerns of security, the RBI concept note states that central bank digital currency ecosystems may be at a similar risk of cyber-attacks that the current payment systems are exposed to. “The cybersecurity considerations need to be taken care of both for the item and the environment.
8. The central bank digital currency is expected to generate huge sets of data in real time. “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”, the concept note stated.
9. Stressing on consumer protection, RBI calls it an important pillar of financial stability. The central bank has called for a consumer protection framework which should consider the variations in the digital literacy of the consumers and ways to increase consumer understanding and transparency.
10. The RBI called for a seamless access to digital currency by consumers. It also emphasised on an effective and efficient resolution of customer grievances through a robust mechanism.