Central Bank Digital Currency (CBDC) Pilot Launched by RBI in Retail Segment

 Discover the latest developments in India's financial landscape as the Reserve Bank of India (RBI) introduces a Central Bank Digital Currency (CBDC) pilot program in the retail segment. Explore the components of this innovative initiative, underpinned by blockchain technology.

Central Bank Digital Currency (CBDC) Pilot: Transforming Retail Transactions with Blockchain Technology

The Reserve Bank of India (RBI) has taken a significant step towards digital transformation by initiating a pilot program for Central Bank Digital Currency (CBDC) in the retail segment. This pioneering endeavor aims to revolutionize retail transactions by leveraging the power of blockchain technology. In a written reply to a question in Lok Sabha, Union Minister of State for Finance, Shri Pankaj Chaudhary, shed light on the key aspects of this groundbreaking initiative.

CBDC Pilot and Blockchain Technology

The CBDC pilot program launched by the RBI focuses on the retail segment and incorporates components based on blockchain technology. By harnessing the potential of blockchain, the RBI seeks to enhance the efficiency, security, and transparency of retail transactions.

Wholesale and Retail Segments:

The RBI has launched separate pilots for both wholesale and retail segments. The wholesale segment's pilot, known as Digital Rupee - Wholesale (e₹-W), was initiated on November 1, 2022. Its primary use case involves the settlement of secondary market transactions in government securities. The introduction of (e₹-W) is anticipated to streamline the inter-bank market and reduce transaction costs through settlement in central bank money.

In the retail segment, the pilot program named digital Rupee-Retail (e₹-R) was launched on December 1, 2022, within a closed user group (CUG) comprising participating customers and merchants. This retail pilot project aims to test the viability of CBDC in everyday transactions, offering users a digital token that represents legal tender.

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Phase-wise Participation and Bank Collaboration:

For the successful execution of the retail pilot, the RBI has identified eight banks for phased participation. In the initial phase, four banks, including State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank, have been selected. Subsequently, the second phase will witness the inclusion of Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank in the retail pilot program.

Functionality and Benefits of CBDC:

The retail version of the CBDC, e₹-R, operates as a digital token mirroring the denominations of paper currency and coins. Distributed through financial intermediaries such as banks, e₹-R facilitates transactions through digital wallets provided by participating banks. Users can engage in both Person to Person (P2P) and Person to Merchant (P2M) transactions with the CBDC. Offering the trust, safety, and settlement finality associated with physical cash, the e₹-R ensures a seamless user experience. It is important to note that CBDC does not accrue interest and can be converted to other forms of money, including deposits with banks.

Future Steps and Expansion:

The RBI envisions gradual expansion of the CBDC pilot program based on the feedback received during the initial phases. This expansion entails broadening the scope of pilots to include additional banks, users, and locations, ensuring comprehensive testing and refining of the CBDC infrastructure.

Conclusion:

The RBI's launch of the CBDC pilot program in the retail segment, incorporating blockchain technology, signifies a significant stride towards a digitally-driven financial landscape in India. By exploring the vast potential of CBDC, the RBI aims to redefine retail transactions, paving the way for a more