Digital rupee pilot project launching on Dec 1 — Here's how it's different from cryptocurrency

The Reserve Bank of India (RBI) on Tuesday said it will launch the first pilot for retail digital rupee (e₹-R) on December 1, 2022, in which four banks including SBI and ICICI Bank will initially participate. On November 1, the RBI had launched the first pilot in the digital rupee - wholesale segment.

Announcing the operationalisation of Central Bank Digital Currency – Retail (e₹-R) Pilot, the RBI said the pilot would cover select locations in closed user group (CUG) comprising participating customers and merchants.

"The e₹-R would be in the form of a digital token that represents legal tender. It would be issued in the same denominations that paper currency and coins are currently issued," it said.

It would be distributed through banks and users will be able to transact with e₹-R through a digital wallet offered by the participating banks and stored on mobile phones/devices.

Central Bank Digital Currency (CBDC) is a digital form of legal tender issued by the Reserve Bank of India (RBI).

Yes, it can be one-for-one as it is a digital form of fiat currency, i.e. the Indian rupee.

It will be initially available for the wholesale segment and extended to the retail category in a month.

Going forward, future pilots will focus on wholesale transactions and cross-border payments based on the pilot's learnings. Settlement in central bank money would reduce transaction costs.

According to the RBI, using the digital rupee in the wholesale segment is expected to make the interbank market more efficient.

CBDC is a digital or virtual currency, but it is not comparable to the private virtual currencies or cryptocurrencies that have mushroomed over the last decade. Private virtual currencies do not represent any person's debt or liabilities as no issuer exists.

The government has already said that private cryptocurrencies will never be legal tender. The RBI has been strongly opposing private cryptocurrencies as they could have implications on national security and financial stability. This is not the case with digital currency.