Explained: What is e-rupee and RBI's pilot project?

The Reserve Bank of India (RBI) has begun the pilot on the retail portion of the central bank digital currency (CBDC), or e-rupee as it would be called. 

What exactly is the e-rupee?

Digital Rupee, or e-rupee, is a form of digital token that represents legal tender. Unlike cryptocurrencies, the digital rupee is issued in the same denominations as paper currency and coins. 

How many banks has the RBI partnered with for this pilot launch?

The RBI has partnered with four banks for now for the pilot. These include State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank in Mumbai, New Delhi, Bengaluru, and Bhubaneswar.

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Would the pilot be open to everyone?

Not really. Initially, the RBI said, the pilot would cover only the closed user group (CUG) comprising participating customers and merchants.

How will the digital rupee work?

The RBI said that digital rupee or e-rupee will be distributed through intermediaries like banks to customers and merchants. Users will be able to transact with e-rupee through a digital wallet offered by the eligible banks and stored on mobile phones or devices.

The central bank said 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. 

“The e-rupee would offer features of physical cash like 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 RBI said.

The RBI further said the pilot will test the “robustness of the entire process of digital rupee creation, distribution, and retail usage in real-time. Different features and applications of the e-rupee token and architecture will be tested in future pilots, based on the learning from this pilot.”

Will more banks be added to the fray?

Going forward, the RBI revealed, four more banks will join the pilot. These are Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank.

Later, the facility will be extended across many more Indian cities including Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla. Eventually, the facility will roll out to other parts of the country. The timeline of the official rollout hasn’t been revealed yet. 

“The scope of pilot may be expanded gradually to include more banks, users, and locations as needed,” the RBI said.