India contemplates transactions in digital currency

The first pilot project for wholesale business in the Central Bank Digital Currency (CBDC) or digital rupee was launched on Nov. 1, 2022. One month later, the first pilot project for the retail digital rupee was unveiled on Dec. 1.

A CBDC or digital rupee is a digital form of currency notes issued by the central bank. Digital currency is an electronic form of money that can be used in contactless transactions.

Federal Finance Minister Nirmala Sitharaman proposed to introduce digital rupee, using blockchain and other technologies, to be issued by the RBI starting 2022-23 in her budget speech on Feb. 1, 2022.

Retail CBDC (CBDC-R) is potentially available for use by all, while wholesale CBDC (CBDC-W) is designed for restricted access to select financial institutions.

The RBI has identified nine banks for participation in digital rupee’s wholesale pilot. These include 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.

However, for the retail pilot, the four banks State Bank of India, ICICI Bank, Yes Bank and IDFC will run business in the cities of Mumbai, New Delhi, Bengaluru and Bhubaneswar. Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank are expected to join the trial later, and the pilot business will also be later extended to other cities.