India’s Retail Digital Rupee: Is It the Same as Cryptocurrency? Learn how it works for users

Less than a month after testing the digital rupee in the wholesale segment, the Reserve Bank of India (RBI) on Tuesday said it will launch the first retail digital rupee (e₹-R) pilot on December 1. This significant announcement will enable people to use India’s first central bank digital currency (CBDC) for retail purchases.

What is Digital Rupee for Retail?

It is India’s first central bank digital currency (CBDC) or a digital or virtual currency that can be used for retail purchases. Like paper money, it is also issued by the Reserve Bank of India. “The ₹-R would be in the form of a digital token constituting legal tender,” the RBI said on Tuesday.

In her Budget 2022-23 speech earlier this year, Finance Minister Nirmala Sitharaman said that the RBI would launch a digital currency in the current financial year to boost the digital economy and enable efficient currency management.

How can you use it?

The RBI on Tuesday announced that users will be able to transact using the digital rupee or e ₹-R through a digital wallet offered by participating banks and stored on mobile phones/devices. Transactions can be both person-to-person (P2P) and person-to-merchant (P2M).

The digital retail rupee would be distributed through intermediaries, i.e. banks.

Which banks will distribute the digital rupee and its denominations?

According to the RBI statement, eight banks have been selected to participate in this pilot project in a phased manner. The first phase will begin with four banks – State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank – in four cities across the country. Four more banks – Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank – will subsequently join this pilot.

“It would be issued in the same denominations in which paper money and coins are currently issued,” the RBI said.

Will it launch across India on December 1st?

No. The RBI said the pilot project would initially cover four cities – Mumbai, New Delhi, Bengaluru and Bhubaneswar – and would later be expanded to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla. The scope of the pilot can be gradually expanded to include additional banks, users and locations as needed.

“The pilot would cover selected locations in a closed user group (CUG) comprising participating customers and dealers,” the RBI said.

Is the digital rupee the same as a cryptocurrency?

The digital rupee is a CBDC or a digital or virtual currency. It is different from private virtual currencies or cryptocurrencies, including Bitcoin, Ethereum, etc., which have mushroomed in the last decade. Private virtual currencies do not represent any debt or liability of any person as there is no issuer.

What experts say

Jyoti Prakash Gadia, Managing Director, Resurgent India, said: “This demonstrates RBI’s consistent efforts to introduce an efficient, user-friendly digital currency mechanism that is well ahead of other central banks across the world.”

Gadia added that the model chosen for the retail rupee is different from that previously announced for the wholesale rupee, which is used by banks for government securities transactions. “The token-based mechanism announced by RBI for retail is more suitable for ordinary retail customers, both for individual customer transactions with selected merchants and for individual customer transactions with another individual, initially for use within the selected closed group.”

Jaya Vaidhyanathan, CEO of BCT Digital, said: “The Reserve Bank of India (RBI) central bank digital currency (CBDC) aims to fulfill the promise of affordable, safer and easier payments for all. By providing a regulated alternative to cryptocurrencies in the market, CBDC would lead to more robust and reliable payments and reduce reliance on cash.”

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