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The Reserve Bank of India (RBI) on Tuesday announced a pilot for retail central bank digital currency (CBDC) on 1 December. The digital rupee would be in the form of a digital token that represents legal tender, the RBI said.

It would be issued in the same denominations that paper currency and coins are currently issued. It would be distributed through intermediaries, i.e., banks.

What is Digital Rupee?

A Central Bank Digital Currency (CBDC) or Digital Rupee is a digital form of currency notes issued by a central bank. Digital currency or rupee is an electronic form of money, that can be used in contactless transactions.

How will digital Rupee work?

The RBI said that digital Rupee or e-Rupee will be distributed through intermediaries like banks to customers and merchants. 

The central bank also said that users will be able to transact with digital rupee through a digital wallet offered by the participating banks and stored on mobile phones or devices.

The central bank confirmed that the transaction in digital Rupee can happen between Person to Person (P2P) and Person to Merchant (P2M). Users will be able to make payments through e-Rupee using QR codes displayed at merchant locations, just like online transactions are done.

Digital rupee features

The digital rupee would offer features of physical cash such as trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks.

The pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time.

9 banks identified for participation in digital rupee’s wholesale pilot

The nine banks are 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, the RBI said in a release.

The pilot would initially cover four cities – Mumbai, Delhi, Bengaluru and Bhubaneswar – and later extend to Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna and Shimla.

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