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A digital rupee pilot in India has kicked off today (December 1), allowing selected merchants and customers to test person-to-person (P2P) and person-to-merchant (P2M) payments in Mumbai and New Delhi.
The Reserve Bank of India (RBI) has started testing a retail central bank digital currency (CBDC), a digital token distributed by banks, with a selected group of merchants and customers.
Users can use the digital rupee via a digital wallet offered by participating banks to make both P2P and P2M transactions. Payments to merchants can be made using QR codes displayed at merchant locations.
Currently, the pilot is taking place in Mumbai, New Delhi, Bengaluru and Bhubaneswar and will later extend to nine other cities.
The State Bank of India, ICICI Bank, Yes Bank and IDFC First Bank are the first banks to enable the use of the digital rupee, with four additional banks — Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank — joining the testing at a later stage.
As the testing continues, the scope of the pilot may be expanded gradually to include more banks, users and locations, the RBI said.
The pilot aims to test the robustness of the process of digital rupee creation, distribution and retail usage in real time.
The digital fiat is issued in the same denominations as paper currency and coins, and represents legal tender in the country.
The reserve bank said the CBDC is similar to physical cash in that it offers “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, such as deposits with banks.
Interoperability key to success
In a concept note published earlier this month, the RBI said it aims to design the CBDC in a way that allows it to be used on the country’s current payments infrastructure such as India’s instant payment platform Unified Payments Interface (UPI), utilising existing digital wallets such PhonePe, Paytm and Google Pay.
Interoperability is key to integrating a CBDC into the broader payments landscape, the reserve bank said. It could help drive end-user adoption and remove the need for the creation of a parallel acceptance infrastructure.
The RBI said at the time that it may use the established messaging, data and other technical standards or decide to build technical interfaces to communicate with other systems.
Meanwhile, banks participating in the pilot said the CBDC platform is hosted by the National Payments Corporation of India, the operator of UPI, local media reported.
The testing of the retail digital rupee follows a similar pilot launched by the RBI in early November for a wholesale CBDC for interbank transfers.
The wholesale CBDC pilot is initially focused on the settlement of secondary market transactions in government securities; however, the testing may later expand to other wholesale transactions and cross-border payments.
India’s finance minister Nirmala Sitharaman announced her government’s plans to issue a CBDC in a speech in parliament in February. She stated at the time that the main goal of the CBDC is to boost the digital economy and fintech technology-enabled evolution.
