RBI launches Digital Rupee: What is it and what are its benefits?

The Reserve Bank of India (RBI) has launched the e-rupee, the first pilot project for central bank digital currency (CBDC), on Tuesday, which will see nine banks, including SBI, Bank of Baroda, HDFC Bank, Yes Bank, Kotak Mahindra Bank and ICICI Bank, settling secondary market transactions in government securities.

The announcement comes months after Union finance minister Nirmala Sitharaman had mentioned the same while presenting the Union Budget 2022, claiming that the move will give a major boost to the economy.

What is CBDC?

As per the RBI’s statement, e-rupee will simply be a digital form of the Indian rupee that is already in use. It is apparently exchangeable one-to-one with the government-issued money.

“The use case for this pilot is settlement of secondary market transactions in government securities. Use of e-Rupee is expected to make the inter-bank market more efficient. Settlement in central bank money would reduce transaction costs by pre-empting the need for settlement guarantee infrastructure or for collateral to mitigate settlement risk,” the RBI informed in its statement on Tuesday.

“Going forward, other wholesale transactions, and cross-border payments will be the focus of future pilots, based on the learnings from this pilot,” the statement further mentioned.

What are the benefits of Digital Rupee?

The RBI hopes that the digital rupee in the wholesale segment is expected to make the interbank market more efficient. “It will become impossible to avoid the gaze of the government, thus subjecting every transaction to relevant laws within the country,” ClearTax founder and CEO, Archit Gupta, was quoted as saying by a news agency.

“Hence, the government will have better control over how money leaves and enters the country, which would allow them to create a space for better budgeting and economic plans for the future, and overall a much safer environment. The lifeline of a digital currency will be indefinite compared to physical note,” he added.